The main purpose of this thesis is to analyze the relationship between the private investment and government expenditures in Iran. A yearly time series data from 1959 to 2003 and the econometric methods of ARDL and ECM are used to estimate the relationship. In addition to government expenditure other than variables such as national income, interest rate and inflation rate are included in investment function. Furthermore, to find the true effect of government expenditure, its value is subdivided to current vs development expenditures, and current vs economic, social, and public expenditures. The results show a positive effect of total government expenditures on private investment. However, when total expenditures are subdivided to current vs development expenditures, the former has a negative effect compared to the latter which has a positive effect. Among the economic, social, and public variables, the effect of economic variable is more pronounce where the social variable ranks second.
