Foreign Capital Inflows and Economic Growth of Iran

Abstract

Foreign capital inflows (FCIs) are considered as catalysts for economic development and important sources of transferring technology and foreign exchange earnings from developed to developing countries. FCIs include foreign direct investment (FDI), personal remittances (PRs) and official development aids (ODAs), which contribute to economic development. This paper aims to estimate the effects of FCIs on economic growth in Iran by using an endogenous growth model and applying Autoregressive Distributed Lags (ARDL) approach over the period 1992-2016. The results of the study indicate that all three kinds of foreign capital inflows have positive and significant impacts on economic growth in the long- and short-run. However, FDI and PRs are more effective than ODAs on economic growth in Iran. The study suggests that sound fiscal, monetary and trade policies lead to full effectiveness of the foreign capital inflows on economic growth.

Keywords

• economic growth
• foreign direct investment
• iran
• personal remittances
• official development aids