An Investigation on the Relationship between Public Investment in Transportation Sector and Economic Growth in Iran

This study investigates the relationship between public investment in transportation and economic growth in Iran, by using traditional instrumental variables models and new mixed fixed and random coefficient approach in a dynamic panel model framework. Transportation is an infrastructure and has bilateral relationship with economic growth, that's why determining causality between this two variables approximately can be useful to make public investment decisions in this sector. Empirical literatures on the relationship between two variables has reported a mixed picture in different countries. To Explain the causality between public investment in transportation and economic growth in Iran, we find out that economic growth has a positive and significant effect on public investment in transportation proposed by the Investment Acceleration Hypothesis and Wagner's low. Investigating reverse causality expressed that there is a significant heterogeneity across country's provinces and for this reason, public investment in transportation has no significant effect on economic growth.