The Role of Islamic Contracts Credits in Private Investment in Iran: An Application of Threshold Regression Approach

Abstract

Investment is an important component of macroeconomics and an essential requirement in the economic development of any country. Due to the centrality of the banks in the financing system of Iran, the facilities granted by banks are one of the most important factors influencing the decisions of investors in the private sector. After the adoption of the law on interest-free banking, banking facilities under various contracts were received in two forms of partnership and exchange. The present research investigates the effects of contracts of partnership and exchange on private sector investment during 2001:1 - 2017:4 using the Threshold Regression (TR) approach. The results show that the impact of contracts of partnership and exchange on private sector investment is not constant and is highly dependent on the regime. Thus, if the investment is less than $313633 (first regime), the contracts of partnership do not have a significant effect and the contracts of exchange negatively affect the investment. In the range of $313633 to $347953 (the second regime), none of the variables has a significant effect. When investment varies between $347953 and $430885 (the third regime), only the contracts of partnership have a significant effect. In this case, the above-mentioned variable positively affects the private sector investment. Again, in the range of $430885 to $475389, none of the contracts can have a significant effect. As long as the investment is more than $475389, the contracts of partnership have a significant negative effect.