The Research Department of Economics and Management of Tadbir Nikan Business, Marketing, and Finance Open 3 Serial Number 16 2026 07 01 Threshold Effects of Financial Development in the Relationship Between Unemployment Rate and Economic Growth Across Provincial Regions Threshold Effects of Financial Development in the Relationship Between Unemployment Rate and Economic Growth Across Provincial Regions 1 13 EN Journal Article 2025 11 05 <p>This study examines the threshold effects of financial development in the relationship between the unemployment rate and economic growth across provincial regions over the period 2006–2024. The research is applied in nature and follows a descriptive–correlational design. Panel data were analyzed using the Panel Smooth Transition Regression (PSTR) approach with a logistic transition function. The main variables include provincial Gross Domestic Product (GDP), income inequality index (WTOP), financial development index measured through household credit provision (FAC), domestic credit to the private sector by banks (FD), education level (EDU), provincial government expenditures (GOV), provincial inflation (CPI), and provincial unemployment rate (UNE). Initially, panel unit root tests, including the Levin–Lin–Chu (LLC) test and Im–Pesaran–Shin (IPS) test, were conducted to assess the stationarity of the variables. Subsequently, the Kao cointegration test confirmed the existence of a long-run relationship among the variables. Diagnostic tests for panel model selection, linearity, threshold effects, and parameter stability were also performed. The results indicate that the relationship between financial development, income inequality, and economic growth is nonlinear, and a PSTR model with a single threshold provides the best specification. The findings reveal that financial development has a positive and statistically significant effect on economic growth, whereas income inequality and unemployment exert negative and significant effects on provincial economic growth. The estimated threshold coefficient for the financial development index is 0.96, and once this threshold is exceeded, the positive impact of financial development on economic growth intensifies. Tests for autocorrelation and heteroskedasticity confirm that the classical assumptions of the model are satisfied, and parameter stability across regimes is also verified. Overall, the results highlight the critical role of financial development in mitigating the adverse effects of income inequality and unemployment on economic growth across provinces. Furthermore, improving the financial development index can enhance the effectiveness of economic policies.</p> https://www.bmfopen.com/index.php/bmfopen/article/download/420/329