Oil Exports and the Iranian Economy

By H. S. Esfahani, Kamiar Mohaddes, M. Hashem, P. Z.. Social Science Research Network, 2013

152 citations recorded by the source corpus.

This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran's financial markets.

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Citations in the corpus

Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis (2011, unknown): “2 The positive e⁄ect of resource abundance on development and growth is also supported by Esfahani et al. (2009), who develop a long run growth model for a major oil exporting economy and derive conditions under which oil revenues are likely to have a lasting impact.”
An Empirical Growth Model for Major Oil Exporters (2012, unknown): “1, see Esfahani et al. (2012). Subject to the co-trending restriction, we then tested the further theory restriction given byc2 =c3 = a, as set out in (25).”
Commodity Price Volatility and the Sources of Growth (2012, unknown): “This result is in line with what is argued in Papyrakis and Gerlagh (2004), Gylfason and Zoega (2006) and Esfahani et al. (2009) among others.”
How Important is Oil in Nigeria’s Economic Growth? (2012, background): “(Esfahani et al., 2009). Note 7. Details of this arguments can be found in the works of Mauro 1995, Leite & Weidmann (1999); Lane & Tornell (1996); Tornell & Lane (1999).”