Assessing the Effectiveness of Exchange Rate Variations on Investment of Iran Industry Sub-Sections

This paper proceeds to assess the effectiveness of real exchange rate variations on investment of eight industry sub-sections of Iran during 1971-2000. To do this, a flexible acceleration-base investment model was used. In this model, the level of desired capital stock, and accordingly, investment determined by valve added, imports of capital goods, exchange rate premium and real exchange rate variables were taken into account. In view of the fact that the exchange rate affects investment through two cost channels, the revenue results showed a double effect on investment of different industries. The direction of this effect is related to the characteristics and structures of industries under consideration.