The Use of Unrestricted Error Correction Model in Private Investment in Iran

In this paper the long run relationship between private investment and the variables influencing it with be determined using conditional ARDL Model Pesaran& Shinصs framework for the years ۱۹۷۳-۲۰۰۴. The results of this study show that there is long run relationship between private investment, public investment, per capita income and capital inventory, real interest rate and granted credit of banks to private sector. Private investment has the most sensitivity to public investment. On the other hand, private investment in Iran has the lowest sensitivity to banks granting credit to private sector, which show inefficiency of banking system in Iran in allocation of resources and the direction it takes to inject money to public sector. So, by making restricting public sector on one hand, and increasing its efficiency on the other, and encouraging the development of Credit & Finance Institutions, the possibility and propensity to invest in private sector will be widely available.