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Public Expenditure Impact on Private Investment in Iran: Crowding out or Crowding in

Author

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  • Mehnatfar, Uosef

    () (University of Mazandaran)

Abstract

Economic theorists have different approaches on the function of governmental investment over economic activities of private section, so that according to the stand point of Keynesian, governmental investment intrigues private investment. On the contrary, classists argue that governmental investment causes private sectors to be driven out from economic activities. Ricardian economics is also believed the neutral and non- effective role of governmental investment on instigation of private activities. The present paper is carried out according to the annual data of the Central Bank through the years 1959-2012, using annual data via Johansen co integration test. The results have indicated that governmental investment has positive and meaningful significance based on Johansen common cumulative approach which has been normalized by private investment. It also presented that increasing in governmental investment would certainly lead to the increasing of private investment which represents a supplementary relation. The stated condition is in accordance with Keynesian’s theory. Government expenditure has also have negative as well as meaningful effect and the production of civil gross according to the expectation of a theorem has a positive symptom. The results have shown that inflation has insignificant impact on private investment which is not significant.

Suggested Citation

  • Mehnatfar, Uosef, 2015. "Public Expenditure Impact on Private Investment in Iran: Crowding out or Crowding in," Quarterly Journal of Applied Theories of Economics, Faculty of Economics, Management and Business, University of Tabriz, vol. 2(1), pages 143-162, April.
  • Handle: RePEc:ris:qjatoe:0008
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    Keywords

    Governmental Expenses; Private Investment; Replacement Efficacy; Supplementary Relation; Iran.;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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