The relationship between investment and GDP: An ARDL approach for the case of Iran

The objective of this paper is to examine the relationship between investment and economic growth in Iran for the period 1970–2010, based on the autoregressive distributed lag (ARDL) approach. The study finds a cointegrating relationship among real GDP, investment, labor force, oil revenues and education. Compared to the other variables, labor force and human capital (education) have the most important effect on long-run economic growth. Moreover, in short-run oil revenues and investment have the strongest effects on economic growth. Estimating error correction model revealed that the speed of adjustment to restore equilibrium is -0.71 which confirms that there is a stable long-run relationship. Regarding weak impact of investment on long run economic growth, it seems that government and policy makers should employ policies that would accelerate economic growth through higher productivity and privileged human capital.