The effect of government support policies on investment in the agricultural sector of Iran

Support policies for agricultural sector are among the most important economic policies in developed as well as developing countries. Therefore, in the present study, the effect of consumer and producer support policies on the investment in agricultural sector was studied using Vector Error Correction Model (VECM) during the 1981-2013 period. The results show that producer and consumer support policies in agricultural sector have had a positive and significant effect on the investment in agricultural sector. According to the results, the ratio of labor force to agricultural land in the studied period showed a negative effect on investment in agricultural sector of the country, indicating a substitutional relationship between labor and capital. On the other hand, the variable of consumer price index has a negative effect on investment in agricultural sector. That is, the real interest rate, which is the difference between inflation and nominal interest rate, decreases with increasing inflation, leading to reduced investment. Also, the ECM variance coefficient of the model, which indicates the modulation rate of the short-term dynamic