University of Tehran Iranian Economic Review 1026-6542 25 2 2021 06 01 External Debt and Economic Growth in Iran and Malaysia: A Smooth Transition Regression Model 323 335 83454 10.22059/ier.2021.83454 EN Jalal Montazeri Shoorekchali Department of Economics, Institute for Humanities and Cultural Studies, Tehran, Iran Ebrahim Eltejaei Department of Economics, Institute for Humanities and Cultural Studies, Tehran, Iran Journal Article 2019 05 25 Since the debt crisis in the 1980s, the effect of external debt on economic growth has been a controversial issue for economists. This paper aims to investigate the effects of external debt on economic growth in Iran and Malaysia. Findings of a Smooth Transition Regression (STR) model support a nonlinear relationship between the external debt size (the ratio of external debt stocks to GDP) and economic growth in Iran and Malaysia over the period 1973–2017. Moreover, results of the STR models estimation show that external debt affects Iranian economic growth in a two-regime structure with a threshold of 2.96%, so that, the effect is negative in both regimes, but in the second regime as debt increases, the negative effect becomes larger. Also, findings indicate that external debt size harms Malaysian economic growth in a three-regime structure with two thresholds of 24.41% and 55.76%. Finally, the mentioned negative effect is considerably less severe in Malaysia than in Iran. https://ier.ut.ac.ir/article_83454_ff7d2c6fee7a74404197a96754cfd4cb.pdf