The temporal relationship between investment and saving in Iran

This paper examines causal relationships between gross domestic investmentrate and national saving rate for Iran using annual data over the period 1970–2010. The Gregory-Hansen (1996) cointegration technique, allowing for the presence of potential structural breaks in data, is applied to empirically examine the long-run co-movement between these variables. The results suggest that there is a long-run relationship between these variables. The Granger Causality test indicates strong unidirectional effects from saving to investment. But there is no evidence that investment promotes domestic saving. Moreover, the main results in this paperconfirm that there is an instantaneous as well as unidirectional causal link running from saving to investment. The results also support the Feldstein-Horioka (1980) hypothesis implying international low capital mobility in Iran.