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One Hundred Years of Oil Income and the Iranian Economy: A Curse or a Blessing?

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  • Kamiar Mohaddes
  • M. Hashem Pesaran

Abstract

This paper examines the impact of oil revenues on the Iranian economy over the past hundred years, spanning the period 1908-2010. It is shown that although oil has been produced in Iran over a very long period, its importance in the Iranian economy was relatively small up until the early 1960s. It is argued that oil income has been both a blessing and a curse. Oil revenues when managed appropriately are a blessing, but their volatility (which in Iran is much higher than oil price volatility) can have adverse effects on real output, through excessively high and persistent levels of inflation. Lack of appropriate institutions and policy mechanisms which act as shock absorbers in the face of high levels of oil revenue volatility have also become a drag on real output. In order to promote growth, policies should be devised to control inflation; to serve as shock absorbers negating the adverse effects of oil revenue volatility; to reduce rent seeking activities; and to prevent excessive dependence of government finances on oil income.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-02/cesifo1_wp4118.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4118.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4118

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Keywords: oil price volatility; oil income; rent seeking; inflation; macroeconomic policy;

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References

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Cited by:
  1. Dreger, Christian & Rahmani, Teymur, 2014. "The Impact of Oil Revenues on the Iranian Economy and the Gulf States," IZA Discussion Papers 8079, Institute for the Study of Labor (IZA).
  2. Mohammad Reza Farzanegan & Mohammad Habibpour, 2014. "Direct Distribution of Rents and the Resource Curse in Iran: A Micro-econometric Analysis," MAGKS Papers on Economics 201425, Philipps-Universit├Ąt Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

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