Document Type : Research Paper

Authors

1 M.A., Economics, Sharif University of Technology, Tehran, Iran

2 Assistant Professor, Economics, Institute for Management and Planning Studies, Tehran, Iran

3 Associate Professor, Economics, Sharif University of Technology, Tehran, Iran

Abstract

Since the beginning of the 2010s, the investment in Iran has experienced a continuous and severe fall and the level of the total real investment at the end of 2018 has approximately reached its 2002 level. In this paper, we show that the fluctuation of the investment (in machinery) up to the beginning of 2010s can be explained by the use of a regression model which includes macroeconomic variables as well as measures of instability in macro environment. However, this model is not able to predict the investment drop during the 2010s and it seems that other factors play a crucial role in the severe fall of the investment in this decade. We will introduce “Political Conflicts” and “Economic Policy Uncertainty” as two indices which are constructed by applying the text analysis method to the press and digital media from 2002 to 2019. The trend of these two indices show a high degree of uncertainty during the recent decade. We will show that the “Political Conflicts” index can explain the investment drop in the 2010s.

Keywords

Main Subjects

Abbasion, V., & Ebrahimi, M., & Moradpour, M. (2008). The effect of real exchange rate uncertainty on private investment. Iranian Journal of Economic Research, 10(35), 159-176. [In Persian]
Abel, A. B. (1983). Optimal investment under uncertainty. The American Economic Review, 73(1), 228-233.
Abel, A. B., & Eberly, J. C. (1993). A unified model of investment under uncertainty (No. w4296). National Bureau of Economic Research.
Ahmadi, L., & Emami, K. (2011). The effect of uncertainty in the current and constructional governments expenses on the investment of private section in Iran economy. Quarterly Journal of Economical Modeling, 5(4), 41-56. [In Persian]
Ahmadi, L., & Samaei, R. (2014). Inflation uncertainty and private investment: evidence from Iran. Iranian Journal of Trade Studies, (70). [In Persian]
Aizenman, J., & Marion, N. (1999). Volatility and investment: interpreting evidence from developing countries. Economica, 66(262), 157-1179.
Alesina, A., & Drazen, A. (1989). Why are stabilizations delayed? (No. w3053). National Bureau of Economic Research.
Arabmazar, A., & NazariGovar, S. (2012). The effect of inflation uncertainty on private investment in Iran. Journal of Iran’s Economic Essays, Iran, 9(18), 59-76. [In Persian]
Arif, S., & Lee, C. M. (2014). Aggregate investment and investor sentiment. The Review of Financial Studies, 27(11), 3241-3279.
Azzimonti, M. (2018). Partisan conflict and private investment. Journal of Monetary Economics, 93, 114-131.
Azzimonti, M., & Talbert, M. (2014). Polarized business cycles. Journal of Monetary Economics, 67, 47-61.
Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross‐section of stock returns. The journal of Finance, 61(4), 1645-1680.
Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), 1593-1636.
Barro, R. J. (1990). The stock market and investment. The review of financial studies, 3(1), 115-131.
Bernanke, B. S. (1983). Irreversibility, uncertainty, and cyclical investment. The quarterly journal of economics, 98(1), 85-106.
Bertola, G., & Caballero, R. J. (1994). Irreversibility and aggregate investment. The Review of Economic Studies, 61(2), 223-246.
Bloom, N., Bond, S., & Van Reenen, J. (2007). Uncertainty and investment dynamics. The review of economic studies, 74(2), 391-415.
Caballero, R. J. (1991). On the sign of the investment-uncertainty relationship. The American Economic Review, 81(1), 279-288.
Caballero, R. J., & Pindyck, R. S. (1992). Uncertainty, investment, and industry evolution (No. w4160). National Bureau of Economic Research.
Craine, R. (1989). Risky business: the allocation of capital. Journal of Monetary Economics, 23(2), 201-218.
De Long, J. B. (1992). Productivity growth and machinery investment: a long-run look, 1870–1980. The Journal of economic history, 52(2), 307-324.
De Long, J. B., & Summers, L. H. (1991). Equipment investment and economic growth. The Quarterly Journal of Economics, 106(2), 445-502.
De Long, J. B., & Summers, L. H. (1993). How strongly do developing economies benefit from equipment investment?. Journal of Monetary Economics, 32(3), 395-415.
De Long, J. B., Summers, L. H., & Abel, A. B. (1992). Equipment investment and economic growth: how strong is the nexus?. Brookings Papers on Economic Activity, 1992(2), 157-211.
Eghbali, A., & Gaskari, R., & Ghanbari, H. (2006). Instability in macroeconomic and private sector investment in Iran. Journal of Economic Research, 6(4), 113-132. [In Persian]
Gale, D. (1996). What have we learned from social learning?. European Economic Review, 40(3-5), 617-628.
Gennaioli, N., Ma, Y., & Shleifer, A. (2016). Expectations and investment. NBER Macroeconomics Annual, 30(1), 379-431.
Ghodsizadeh, M. (2018). Measuring economic uncertainty in Iran. Master’s thesis of economics, Graduate School of Management and Economics, Sharif University of Technology, Iran, 9(18), 59-76. [In Persian]
Government of India. (2019). Economic Survey 2018-19. Volume 1, Chapter 6, 115-127.
Gulen, H., & Ion, M. (2016). Policy uncertainty and corporate investment. The Review of Financial Studies, 29(3), 523-564.
Gutiérrez, G., & Philippon, T. (2016). Investment-less growth: An empirical investigation (No. w22897). National Bureau of Economic Research.
Hafezi, H. (2014). Investigating the role of banking system on private investment in Iran. Quarterly Journal of Economic Eesearch Trend, 21(68), 87-119. [In Persian]
Hayashi, F. (1982). Tobin's marginal q and average q: A neoclassical interpretation. Econometrica: Journal of the Econometric Society,50(1), 213-224.
Jurado, K., Ludvigson, S. C., & Ng, S. (2015). Measuring uncertainty. American Economic Review, 105(3), 1177-1216.
Khosravi, T., & Pajouyan, J. (2012). The effect of inflation on private investment. Quarterly Journal of Investment Knowledge, 1(4), 1-17. [In Persian]
Khosravi, T., & Pajouyan, J. (2013). The effect of corporate tax on the private sector investment using bound test. Quarterly Journal of Financial Economics, 7(25), 95-121. [In Persian]
Komijani, A., & Mojab, R. (2011). The links between inflation uncertainty and investment in Iran. Journal of Economic Research, 11(2), 13-30. [In Persian]
Kort, P. M., Murto, P., & Pawlina, G. (2010). Uncertainty and stepwise investment. European Journal of Operational Research, 202(1), 196-203.
Lamont, O. A. (2000). Investment plans and stock returns. The Journal of Finance, 55(6), 2719-2745.
Mehrpour, F., & Samadi, A. (2013). The Effects of Property Rights Security on Private Investment in Iran. Quarterly Journal of Applied Economics Studies, Iran (AESI), 2(7), 87-110. [In Persian]
Ng, S., & Perron, P. (1995). Unit root tests in ARMA models with data-dependent methods for the selection of the truncation lag. Journal of the American Statistical Association, 90, 268-281.
Leahy, J. V., & Whited, T. M. (1995). The effect of uncertainty on investment: Some stylized facts (No. w4986). National Bureau of Economic Research.
Saadatmehr, M. (2011). The study of the effect of investment security on private investment in Iran. Quarterly Journal of Economic Growth and Development Research, 1(2), 163-187. [In Persian]
Servén, L. (2003). Real-exchange-rate uncertainty and private investment in LDCs. Review of Economics and Statistics, 85(1), 212-218.
Wu, J., Zhang, J., Zhang, S., & Zou, L. (2020). The economic policy uncertainty and firm investment in Australia. Applied Economics, 52(31), 1-25.
Zeira, J. (1990). Cost uncertainty and the rate of investment. Journal of Economic Dynamics and Control, 14(1), 53-63.