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Modelling The Asymmetric Effects Of Inflation On Real Investment In Iran, 1959-2008

  • KAMALIAN, Amin Reza
  • PAHLAVANI, Mosayeb

Using a threshold regression model and annual data (1960-2008), this paper examines the determinants of investment in Iran. We found that real GDP, the trade openness index and inflation can influence investment. However, the effect of inflation on investment follows an asymmetry adjustment process. The threshold value for the rate of inflation has endogenously been estimated to be at 11.9 per cent. If the annual rate of inflation exceeds this threshold, it will have a negative impact on investment. But, if inflation remains below this rate, not only the negative effect fades away but also rising prices can boost investment. Although investment exhibited a positive trend since 1990 it is not yet enough to guarantee high increases in income per capita and low rates of unemployment, given the high increase of population and labor force during the last years. We recommend economic polices geared at fostering not only public investment but also private sector investment in order to achieve the goals of higher income per capita and higher employment rates.

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Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 10 (2010)
Issue (Month): 1 ()

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Handle: RePEc:eaa:aeinde:v:10:y:2010:i:1_11
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  1. Charles W. Bischoff, 1971. "Business Investment in the 1970s: A Comparison of Models," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 2(1), pages 13-64.
  2. Valadkhani, Abbas, 2001. "An Analysis of Iran’s Third Five-Year Development Plan in the Post-Revolution Era (2000-2005)," MPRA Paper 50386, University Library of Munich, Germany.
  3. Abbas Valadkhani, 2004. "What determines private investment in Iran?," International Journal of Social Economics, Emerald Group Publishing, vol. 31(5/6), pages 457-468, May.
  4. Guisan, M.Carmen & Exposito, Pilar, 2003. "Education, Industry, Trade and Development of Asia-Pacific countries in 1980-99," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 3(2), pages 117-142.
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