The Effect of Oil Shocks on Private Investment in Iran

Regarding Government's revenues, oil and oil income are very important factors for oil export countries such as Iran. Since oil prices are determined in the world markets, it is one of the factors for economic instability and in particular for financing private investment. These effects will be more effective in the presence of oil shocks. This paper attempts to determine the direction and the intensity of oil shocks using on econometric model and it's effects on private investment in Iranian economy during 1959-2002. The results of empirical studies imply that in the case of positive oil shocks, i.e. price increase of more than 25 percent, the effect would be positive and in the case of negative oil shocks, i.e. price increase of less than 25 percent, the effects would be negative. In other words, oil shocks on private investment have different effects on private investment.