Indian Journal of Fundamental and Applied Life Sciences ISSN: 2231– 6345 (Online) An Open Access, Online International Journal Available at www.cibtech.org/sp.ed/jls/2015/01/jls.htm 2015 Vol.5 (S1), pp. 5529-5536/Falahati et al. Review Article © Copyright 2014 | Centre for Info Bio Technology (CIBTech) 5529 RELATIONSHIP BETWEEN NATIONAL SAVING AND DOMESTIC INVESTMENT IN IRAN; THE FELDSTEIN-HORIOKA PUZZLE REVISITED Ali Falahati, Sohrab Delangizan and * Miriam Darbidi Department of Social Sciences, Razi University, Kermanshah *Author for Correspondence ABSTRACT The main purpose of this paper is to survey the relationship between national saving and domestic investment in the Iran economy with considering Feldstein-Horioka theory by the Johansen- Juselius Cointegration test using Annual data (1965-2011). It also is trying to investigate the causality relationship between national saving and domestic investment using the Toda and Yamamoto causality test. The model estimation results show that there is a positive equilibrium long-run relationship between national savings and domestic investment in the mentioned coursed. That's the reason for low mobility of capital in the Iran economy. Toda and Yamamoto causality Test results show a one-way causal relationship from national saving to domestic investment. Keywords: National Saving, Domestic Investment, Johansen–Juselius Cointegration Test, Toda - Yamamoto Causality Test INTRODUCTION Investment is considered as an engine for economic growth and development in economic literatures. And as the capital is one of the important factors of production have been give it a special place and the experience of world economic development shows that with economic growth, there have been increasing path of capital accumulation (Bahrami and Aslani, 2005). On the other hand savings always have a vital role at lifecycle organized communities and producers in various forms. Each product requires preparation and creation tool that is also somehow associated with abstinence from consumption. So, it seems creation tool of human is duplicate initial savings. Which one of savings and investment variables is more important and more fundamental has been a controversial discussion. In this regard Kaldor says: "The whole contention between Keynesian and non-Keynesian theories, is that, whether the investment determines savings or vice versa."This argument implies that in neoclassical models, savings determines the investment and in Keynesian models investment determines the volume of saving. Thus, study the relationship between two variables national savings and domestic investment has fundamental importance and hackling the discussion of this relationship being considered in explaining the behavior of the external sector of the economy more than in analysis of the domestic economy. Despite various comments, there are exiles on the analysis of the relationship between savings and investment. That almost the most economists agree about it and addressing it is considered as fundamental issues within the international economy area. Among that the axis can be noted that the perfect capital mobility between countries exacerbate the gap between domestic investment and national saving. This means that in the absence of obstacles to the movement of capital between countries, each country's national savings can select the most profitable projects around the world and move into it. As a result of that the counter current and heterogeneous trend between savings and investment will experience inside an economy (Hadian, 1999). Numerous studies are conducted in this area that some of them are mentioned here. In analyzing the behavior of savings and investment the manner of relation between these two variables are introduced as the index to measure the degree of capital mobility between countries. Their findings for the study sample indicate that domestic investment is determined primarily by the National Savings and capital mobility between countries is limited. Hussein (1998), the issue of the capital mobility and FH puzzle in 23 developed countries analyzed using ordinary least squares technique. The results showed that in most countries, capital is moving significantly during the past three centuries. In this study, only 5of