Public Funding of Investment in Transport and Communication and Economic Growth in Iran based on Gregory-Hansen Cointegration Analysis

This paper examines causal relationships between investment in transport and communication (TC) by public funding and GDP for Iran using annual data over the period 1970-2014. A three-variable model is formulated with oil revenues as the third variable to empirically examine the long-run co-movement between these variables based on the Gregory-Hansen (1996) cointegration technique, allowing for the presence of potential structural breaks in data. The results suggest that there is a long-run relationship between these variables. The Granger Causality test indicates strong unidirectional effects from oil revenues and GDP to TC. But there is no evidence that TC promotes long-term economic growth. Moreover, the main results in this paper confirm that there is an instantaneous as well as unidirectional causal link running from oil revenues and GDP to TC. The results is attributed to rent seeking activities, low productivity and mass of unfinished or long-delayed development projects, particularity during the oil booms.