Examination and Comparison of the Economic Effects of Spillovers of Investment Risk in Iran: Computable General Equilibrium Model Approach

Investment is very important for economic and social development and is considered as one of the powerful levers for achieving development. Accordingly, it is of great importance to assess the investment risk and its spillovers in all developed and developing countries because the risk phenomenon is one of the key features of decision making in the field of investment, affairs related to financial markets and a variety of economic activities. In this regard, the present paper evaluates the effect of investment risk spillover on key economic indicators using a computable general equilibrium (CGE) model, GTAP.9 data base and the 2011 inter-regional social accounting matrix (SAM). Two scenarios of 10 and 3% increase in investment risk were considered in order to investigate the effect of these changes according to a recent trend analysis of economic indicators in Iran and the trend of the Iranian economy towards globalization and opening of the economy windows. The results show that both scenarios of increasing investment risk reduce inflation, gross domestic product and total investment. Government expenditures are reduced in all sectors of the economy except the service sector, which is almost unchanged. The exports are increased in all sectors and the imports are reduced in sectors of agriculture, industry and services. Also, the results show that the import of the oil and gas sector has not been heavily influenced by the investment risk due to its governmental status. By assessing these two scenarios and the sensitivity of the macroeconomic indicators to the degree of risk change, it can be stated that the key economic indicators will be significantly improved by managing the risk of investment; and the country will ultimately follow the development path more quickly.