The relationship between savings and investment in Iran: Testing Feldsteinʹs and Horiokaʹs theory

This paper focuses on the relationship between savings and investment in Iranʹs economy. Based on the results of this study, there is a long-run equilibrium relationship between savings and gross domestic investment, and direct significant effect of savings on investment in the long run is stronger than that in the short run. Thus, considering Feldsteinʹs and Horiokaʹs theory, a hypothesis of complete capital immobility in Iran is not rejected. The estimated coefficient of error correction term shows that more than two years is required to settle the shock to investment. Providing necessary facilities for foreign investment has been suggested as a policy recommendation in the research.