What determines private investment in Iran?

Iran's third five‐year development (2000/2001‐2004/2005) has been considered a pivotal role for private investment in creating 700,000‐800,000 jobs per annum to stabilise the rate of unemployment. This paper examines the long‐ and short‐run determinants of the private investment function by employing the Johansen multivariate cointegration technique and a short‐run dynamic model. Using annual data for the period 1960‐2000, this paper finds, inter alia, that private investment is cointegrated with non‐oil gross domestic product and the rate of inflation. It is found that a 1 per cent increase in inflation in the long run can immediately result in a 1 per cent decline in investment in the short run.