Theoretical and Experimental Explanation of the Relationship between Foreign Direct Investment and Foreign Debts of Iran (1971-2009)

Capital accumulation، as one of the major prerequisites of economic growth process، could be provided from internal or external resources. Foreign financial resources as a supplement for domestic savings، in addition to bridging the investment savings gap، are regarded as a solution to confront with foreign currency gap. Foreign debts are deemed as one of the foreign financial resources in developing countries. On the other hand، foreign direct investment involves advantages such as capital attraction، up-to-date technology and knowledge، higher management capability، higher level of employment، improved balance payments and increased competition power. The question arises here as to whether or not there is any causal relationship between foreign debt and foreign direct investment in Iran. In a try to respond to this question، this article explains theoretical principles of the subject and manner of decision-making in multi-national companies about foreign direct investment under foreign debt conditions of the host country. Later، it tests the causal relationship among the proposed variables through Vector Auto-regression model (VAR) and Granger Causality Test while conducting cognitive tests. The obtained results demonstrated that there has been no causality relationship between variables of foreign direct investment and foreign debts in Iran within the period of the study.