Investigating Factors Affecting Capital Accumulation in Iran

Investment is one of the pillars of each economy. Undoubtedly, increase in production is the first step in economic development, which requires higher investment. Hence, some economic theories refer to lack of capital as main cause of underdevelopment. The present paper examines the factors influencing capital accumulation in Iran using time series data over the period 1974-2004. It applies an auto-regressive distributed lags model and Johansen- Juselius test to examine long-run relationship. The findings indicate that capital accumulation is affected by tax revenues, public and private savings, interest rate, and net current and capital accounts.Capital accumulation is directly related to tax revenues, public and private savings, and net capital account, but indirectly to the domestic interest rate.Therefore, a proper financial policy can be effective in achieving the goal of more capital accumulation.