Iranian Economic Review
Volume:14 Issue: 25, Winter 2010

Foreign direct investment (FDI) is considered as an instrument for overcoming capital shortage problem as well as a suitable way for accessing modern technologies. Thus, recognizing determinant factors of foreign direct investment is important for its absorbing. According to literature, Economic liberalization is an important factor affecting FDI. Experience of developing countries resorting to liberalization policies also indicates that they absorb considerable FDI. Purpose of this paper is to examine the hypothesis which is “economic liberalization has a positive effect on FDI” as well as other major factors determining FDI. For this, we have pooled data for the developing countries during time period 1995-2004. The obtained results indicate that economic liberalization has a positive and significant effect on the FDI, while inflation has a negative and significant effect and both of them seem to be robust. Based the results obtained, if developing countries attempt to attract FDI, it should be more efficient to focus on economic liberalization and to develop their infrastructure rather than just reducing wages. Also, regarding negative and significant effect of inflation on FDI, these countries should provide a stable environment to facilitate inflow of foreign direct investment.

This paper pursues two goals. At first, it uses an unrestricted error correction model (UECM) and the bounds testing approach proposed by Pesaran, Shin, and Smith (2001) to study the short- and long-run effects of bank credit on inflation in Iran, a country with some history of interest-free banking system. Secondly, we examine how institutional and cultural changes resulted from bank nationalization and the implementation of interest-free banking have affected price level movement in Iran. The approach we have used in this paper is capable of testing the existence of long run relations regardless of whether the underlying variables are stationary, integrated, or mutually cointegrated. The results indicate that there exists a long-run relationship between inflation and its main determinants, namely, bank credit, import price, real GNP, and black market exchange rate. However, bank credit has no short-run effect on price level movement in Iran. Furthermore, the paper shows that the nationalization of banks and the implementation of interest-free banking system in Iran have caused a structural change in the behavior of inflation.

his study estimates the demand for broad money in Iran through multivariate Cointegration analysis as proposed by Johansen and Juselius and tests the validity of the estimated model through forecasting money demand for several periods Using stochastic simulation technique. The study obtained one unique cointegrated long run relationship among the logarithmic forms of Broad Money, National Income, Exchange Rate, Price Index and Oil Prices. After identification of exogenous variables, system of equation was designed and estimated by OLS method. Model was solved by considering two scenarios: Baseline and Scenario1.In the Baseline the variables were considered endogenous and in the Scenario 1, Price Index and Oil Price were regarded as exogenous. This model was solved with stochastic simulation approach and give dynamic forecast of the variables. The results show that there is trivial difference between actual values and amount forecasted under Scenario1. On the other hand, forecasted amounts by Baseline scenario have relatively substantial deviations from the actual outcomes, though they do seem to follow the general trends in the data very well.

Growth and value stocks are two important subjects in capital markets. First, these two stocks based on different variables such as Estimation of their amount of risks and returns, circumstances of obtaining returns at different periods in up and down market conditions were realized in Tehran Stock Exchange. Then Growth stock with Value Stock was compared through variables such as firm size, return and risk premium. The results show that firm size is not suitable to realize growth and value stock from each other. Also an investor by purchasing the growth stock obtains the risk premium more than value stock in up market and growth stocks returns are greater than value stock returns in Tehran stock exchange.

The impact of fiscal policies on economic activities is one of the most important issues in both theory and practice. In this paper, we analyze economic growth and income distribution effects of tax and also the impact of inequality on economic growth in Iran and some selected East Asian countries. For this, we use panel data regression in the period of 1990-2006. The Results denote that the impact of goods and services tax on inequality and growth is insignificant, but the ratios of tax on income, profits and capital gains have positive and significant effects on Gini index and growth. International trade tax has a negative effect on growth. We also find evidence of a positive impact of income inequality on growth.

Using a bivariate GARCH model, we investigate the causal relationships between inflation, growth, inflation uncertainty (nominal uncertainty) and output uncertainty (real uncertainty) for seasonally adjusted quarterly data in Iran. Our results indicate that increased inflation is associated with higher nominal uncertainty. Further, we found that higher output uncertainty increases both inflation and growth. Increased growth, in turn, is associated with higher real uncertainty. We found no strong evidence in favor of other causal relationships which we have tested. These results support the argument of a price stability objective for the monetary authority. To mitigate the harmful effects of real uncertainty, Iran should take policy measures to withstand adverse domestic and external shocks and lessen their exposure to the volatility.

Productivity is often computed by approximating the weighted sum of the inputs from the estimation of the Cobb-Douglas production function. Such estimates, however, may suffer from simultaneity and selection biases. Olley and Pakes (1996) introduced a semi-parametric method which allows us to estimate the production function parameters consistently and thus obtain reliable productivity measures by controlling for such biases. This study first reviews this method and then introduces a Stata(10) command to implement it for manufacturing industry in Iran. The results show that material, skill labor and capital play important role in production function and this is increasing return to scale (IRS) by estimation of Olley and Pakes approach versus decreasing return to scale (DRS) by fixed effect. After estimation of production and calculated total factor productivity (TFP), we concluded that the effect of export and exit rate on TFP at manufacturing industry (ISIC 4digits) in Iran is not very considerable to compare to import penetration coefficient and year effect.

An attempt is made to establish a link between ICT sector investment and economic growth and to assess the specific impact on the productivity of the economy through network of 10 industrial sectors. By using improved techniques comprising input and output technique and economic modeling, that results suggested that ICT productivity has outpaced the economy wide productivity level. Furthermore, we found that ICT was a negatively contribute to the performance of economic system as a whole. Indeed the analysis conducted in this paper shows that more industries especially service sector have not been benefited from the incorporation of advances in telecommunications technology which might have, amongst other things, emanated from the policy of discouraging information investment in their production processes. To achieve this, the government must address a number of policy and regulatory issues to ensure the sector’s continued growth and its extension into underserved areas.