The Relationship Between Trade and Economic Growth in Iran: An Application of a New Cointegration Technique in the Presence of Structural Breaks

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The Relationship Between Trade and Economic Growth in Iran: An Application of a New Cointegration Technique in the Presence of Structural Breaks

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Pahlavani, Mosayeb () (University of Wollongong)

Abstract

This paper examines the major determinants of GDP growth in Iran using annual time series data spanning from 1960 to 2003. The Iranian economy has been subject to a multitude of structural changes and regime shifts during the sample period. Thus, time series properties of the data are first analysed by Zivot-Andrews (1992) model. The empirical results based on this model indicate that there is not enough evidence against the null hypothesis of unit roots for all of the variables under investigation. Taking into account the resulting endogenously determined structural breaks; the Saikkonen and Luetkephol (2000) cointegration approach is then employed to determine the long-run drivers of economic growth. This cointegration technique accommodates potential structural breaks that could undermine the existence of a long-run relationship between GDP growth and its main determinants. Empirical estimates indicate that in the long-term, policies aimed at promoting various types of physical investment, human capital, trade openness and technological innovations will improve economic growth.

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Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp05-28.

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Length: 11 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:uow:depec1:wp05-28

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Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
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Web page: http://www.uow.edu.au/commerce/econ/
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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-03-11 (All new papers)
NEP-CWA-2006-03-11 (Central & Western Asia)

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Other versions:
- Gregory, A.W. & Hansen, B.E., 1992. "Residual-Based Tests for Cointegration in Models with Regime Shifts," RCER Working Papers 335, University of Rochester - Center for Economic Research (RCER).
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Other versions:
- Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November. [Downloadable!] (restricted)
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Other versions:
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Other versions:
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Izani Ibrahim & Craig MacPhee, 2003. "Export externalities and economic growth," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 12(3), pages 257-283, September. [Downloadable!] (restricted)
Saikkonen, Pentti & Lutkepohl, Helmut, 2000. "Testing for the Cointegrating Rank of a VAR Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(4), pages 451-64, October.
Other versions:
- P. Saikkonen & H. Lütkepohl, . "Testing for the Cointegrating Rank of a VAR Process with Structural Shifts," Sonderforschungsbereich 373 1998-82, Humboldt Universitaet Berlin.

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