Effect of Government Spending and Macro-Economic Uncertainty on Private Investment: Evidence from Iran

This study investigates the effect of government spending and macroeconomic uncertainty on Private sector investment in Iran during 1971 to 2008. Co-integration and vector error-correction models are used to obtain the estimates of the co-integrating relations and the long-run dynamics, respectively. The uncertainty measure generated from exponential generalized autoregressive conditional heteroscedastic (EGARCH(1,1)) process .The results show that government spending, uncertainty and interest rate have significant negative effect on private investment in the long run in Iran while the GDP has significant positive effect on private investment.