External Debt, Institutional Quality, Smart Governance, and Digital Transformation: Implications for Sustainable Economic Growth in Middle Eastern Oil Countries and Iran

Bayat, Vajihe; Mousavian, Seyed Hamed

External Debt, Institutional Quality, Smart Governance, and Digital Transformation: Implications for Sustainable Economic Growth in Middle Eastern Oil Countries and Iran

Document Type : Original Article

Authors

Vajihe Bayat

Seyed Hamed Mousavian

PhD., Department of Economics, SR.C., Islamic Azad University, Tehran, Iran

Abstract

This study examines the relationship between external debt and sustainable economic growth, considering institutional quality, smart governance, and digital transformation in Iran and selected Middle East oil countries. Using annual data for Middle East oil countries (2000–2023) and Iran (1991–2024), the study applies a Panel Smooth Transition Regression (PSTR) model for the panel analysis and a Logistic Smooth Transition Regression (LSTR) model for the country-specific time-series analysis to capture nonlinear relationships. The research is descriptive-correlational and applied. In the panel analysis, LLC and IPS unit root tests confirmed stationarity, and the Kao test established a long-term cointegrating relationship. Linearity tests supported the use of the PSTR model. In Iran’s time-series analysis, Phillips–Perron and Johansen tests confirmed long-run equilibrium, while linearity tests justified the application of the LSTR model. The LSTR estimates indicate that external debt negatively affects sustainable economic growth under nonlinear conditions, with the adverse effect strengthening after crossing the −0.459 threshold. Furthermore, institutional quality, regulatory quality, smart governance, digital transformation, financial development, trade openness, and the rule of law exhibit positive and significant effects, whereas inflation and budget deficits negatively affect growth. Diagnostic tests confirm coefficient stability and the absence of autocorrelation and heteroscedasticity. Overall, the findings suggest that strengthening smart governance, institutional quality, and digital transformation can mitigate the adverse effects of external debt, providing a robust framework for fiscal and debt policy formulation in Middle Eastern oil-producing countries and Iran.

Keywords

External debt

Sustainable economic growth

Institutional quality

Smart governance

Digital transformation

Subjects

Digital Transformation

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