THE EFFECT OF CAPITAL FORMATION ON ECONOMIC GROWTH IN IR IRAN: TESTING VARIOUS THEORIES WITH AN ARDL MODEL
THE EFFECT OF CAPITAL FORMATION ON ECONOMIC GROWTH IN IR IRAN: TESTING VARIOUS THEORIES WITH AN ARDL MODEL

Summary/Abstract: Purpose of the research: This paper examines the relationship between capital formation and economic growth in IR Iran during the period 1974-2014. Considering unique structure of Iranian economy developed by five-year plans under certain period of sanction, we should compare different economic growth theories (marxian, keynesian and neo-classical). With respect to second larger oil producer (even in mentioned condition) we could simplify analysis on theories validation on single factor economy, but the main focus still remaining on possibilities of structural reforms and impact of capital formation. Methodology: We use 7 variables grouped in main factors in growth models – capital, labor and technology. For establishing short and long-run equilibrium to explain effects on GDP pc we deployed ARDL model. For testing stationary of variables under ARDL we use AFD (Augmented Dickey-Fuller) test. All variables was taken in form of logarithm show as non-stationary on first difference. Since FDI inflow has some negative values, we added new variable to complement results. As dummy variable we use periods 1978-1988 which represent Iraq-Iran war, and 2004-2014 as period of tightened economic sanction. ARDL models are selected by AIK and SIC criteria, with more precise results with SIC.

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