The Effect of Rent-seeking Opportunities on Private Sector Deposits with Banks in Iranian Economy

Since private sector investment is dependent on people deposits with banks, the amount of deposits affects national investment and product. The various factors influence private deposits with banks. This paper investigates the relationship between rent-seeking opportunities and bank deposits using the Auto Regressive Distributed Lag Model (ARDL) in Iranian economy during 1971-2010. The results show that the exchange rate premium and interest rate premium affect quantity of deposits with banks in the short-run with coefficients of orders -0.1486 and -0.3468, respectively. Moreover, the long-run equilibrium relationship indicates that the elasticity of deposits relative to rent-seeking opportunities in exchange and money markets are -0.0166 and -0.0389, respectively. These findings show that rent-seeking indicators have significant and negative effects on private deposits with banks. In fact, rent-seekingopportunities stimulate individuals to shift away their deposits from formal money market towards informal markets in order to make more profits.