Loading...

Political Conflicts, Uncertainty and Investment in Iran

Habibpour Moghaddam, Ehsan | 2019

367 Viewed
  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 52521 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Barakchian, Mahdi; Nili, Masoud
  7. Abstract:
  8. Investment is a variable that would determine the future status of the economy. Given the fact that the investment behavior consequences in the economy would appear in the long-term horizons, unlike most other state variables, such as inflation and exchange rates, it may not be a tangible variable. As a result, there may be fewer sensitivities toward it. However, looking at the evidence, it is observable that the level of investment in Iran has experienced a severe reduction since the early 2010s, and this decline in investment has remained stable in its trend. The real aggregate investment level in Iran at the end of the year 2018 was approximately equal to its level in the year 2002. There is an even more severe story for investments in machinery so that the real investment level in machinery in the year 2018 was only slightly higher than the level of this variable in 1999.In this study, we examine how this decreasing trend in investment could be related to potential subjective factors, namely political conflicts and uncertainty after controlling fundamental economic variables that determine the behavior of investment. To do so, we first explore whether the functioning of the investment in the 2010s could be explained with the general state of the economy. The beginning of this decade was accompanied by the US first-round severe sanctions against Iran, which led to an economic downturn as well as instability and volatility in economic variables. Our results show that without considering any additional essential factors influencing investment, our prediction of this variable will be different from the realized level of it from the middle of the decade. In other words, we find if we put only the traditional explanatory variables into our model, according to the explanation of these factors for investment, after time around 2014, more investments must be made in Iran over these years. We then focus our attention on other factors that have a potential explanatory power on investment. For this purpose, we introduce two indicators that contain information about economic policy uncertainty and political conflict at the country level. After measuring these indexes, by using macro data as well as the micro-level data, we test how these indexes could explain the downtrend of investment along with the traditional determinants of it. The results show there is a negative impact of these introduced indexes on the investment after controlling all other factors. Our augmented model by these indexes could explain the gap between predicted investment in our previous analysis and the actual level of this variable. We especially found that, since the beginning of the current decade, our measure of the political conflict has had a crucial impact on investment
  9. Keywords:
  10. Investment ; Machinery ; Political ; Conflict ; Iran ; Equipment ; Uncertainty

 Digital Object List

 Bookmark

No TOC