The Relationship Between Increasing Public/Private Sector Investment and Economic Growth in Iran

Abstract

The form and the extent of government intervention in the economy are important issues in each country. Because of the importance of the subject, the present article examines the relationship between government investment expenditures, private sector investment and other related macroeconomic variables with economic growth from 1989 to 2013. For examining the long- and short-run relationships between model variables, the Autoregressive Distributed Lag (ARDL) approach and the standard Granger-causality relationship have been used. Based on the long- and short-run Granger-causality relationship, a one-way causality relationship from economic growth to government sector investment expenditures and a one-way causality relationship from the government sector consumption expenditures to government sector investment expenditures exist. Moreover, research findings show a two-way inverse Granger causality relationship between private sector consumption expenditures and government sector investment expenditures in both long- and short-run. Finally, there is no causality relationship between government sector investment expenditures and private sector investment expenditures.JEL Classification: H11-H50-E22-O43