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Energy and labour reform: Evidence from Iran

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  • Hesham AlShehabi, Omar

Abstract

Taking Iran as a case study, we analyze the effects of eliminating crude oil and fuel subsidies on the labour market using two alternative policy options. The first redistributes additional revenue as extra income to households, while the second directs revenue into increased investment. We investigate immediate versus gradual subsidy removal, focusing on the transition dynamics at play. A purpose-built dynamic Computable General Equilibrium model is deployed with a unique Social Accounting Matrix of Iran. It is shown that rebating the extra revenue to households would adversely affect the labour market. Industries and employment contract due to the Dutch Disease effect and the more expensive fuel inputs. Channeling extra revenue into investment, however, considerably improves the labour market's fortunes in the long run via increased capital accumulation and shifts in industrial composition. Gradual subsidy removal allows for a smoother transition that minimizes short-run costs in the labour market.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 34 (2012)
Issue (Month): 3 ()
Pages: 441-459

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Handle: RePEc:eee:jpolmo:v:34:y:2012:i:3:p:441-459

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Web page: http://www.elsevier.com/locate/inca/505735

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Keywords: Unemployment; Oil; Energy; CGE; Subsidies; Iran;

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References

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  1. Agenor, Pierre-Richard & Nabli, Mustapha K. & Yousef, Tarik & Jensen, Henning Tarp, 2004. "Labor market reforms, growth, and unemployment in labor-exporting countries in the Middle East and North Africa," Policy Research Working Paper Series 3328, The World Bank.
  2. Hope, Einar & Singh, Balbir, 1995. "Energy price increases in developing countries : case studies of Colombia, Ghana, Indonesia, Malaysia, Turkey, and Zimbabwe," Policy Research Working Paper Series 1442, The World Bank.
  3. Chontanawat, Jaruwan & Hunt, Lester C. & Pierse, Richard, 2008. "Does energy consumption cause economic growth?: Evidence from a systematic study of over 100 countries," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 209-220.
  4. Rutherford, Thomas F. & Rutstrom, E. Elisabet & Tarr, David, 1997. "Morocco's free trade agreement with the EU: A quantitative assessment," Economic Modelling, Elsevier, vol. 14(2), pages 237-269, April.
  5. Bergman, Lars, 1988. "Energy Policy Modeling: A survey of general equilibrium approaches," Journal of Policy Modeling, Elsevier, vol. 10(3), pages 377-399.
  6. Jesper Jensen & David Tarr, 2003. "Trade, Exchange Rate, and Energy Pricing Reform in Iran: Potentially Large Efficiency Effects and Gains to the Poor," Review of Development Economics, Wiley Blackwell, vol. 7(4), pages 543-562, November.
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Cited by:
  1. AlShehabi, Omar Hesham, 2013. "Modelling energy and labour linkages: A CGE approach with an application to Iran," Economic Modelling, Elsevier, vol. 35(C), pages 88-98.
  2. Hossein Mirshojaeian Hosseini & Shinji Kaneko, 2012. "A general equilibrium analysis of the inflationary impact of energy subsidies reform in Iran," IDEC DP2 Series 2-8, Hiroshima University, Graduate School for International Development and Cooperation (IDEC).
  3. Solaymani, Saeed & Kari, Fatimah, 2014. "Impacts of energy subsidy reform on the Malaysian economy and transportation sector," Energy Policy, Elsevier, vol. 70(C), pages 115-125.

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