A Study Examining the Effect of Oil Exports on Agricultural Value added in Iran

The slower economic growth in some countries with high natural resources shows an unsolved dilemma in economics when we compare the economic growth of such countries with some other countries that are poor in natural resources but surprisingly have a higher economic growth. The purpose of this study is to determine the relationship between oil exports and agricultural value added in Iran. The theoretical framework was designed based on this assumption that the total production in the economy is divided into two sections: production for inside and production for exports. The data were collected from 1961 to 2006 and were analyzed using Auto Regressive Distributed Lag (ARDL) model. The result of the analyses showed that there was significant relationship between oil export and agricultural value added. Error correction coefficient is negative and small and is equal to – 0.31 and it shows that if there is any shock or imbalance in total production, the system will be back to stability after a 3-year period. Together the independent variables explained 83% of the variance in the dependent variables. The remaining 17% was due to unidentified variables. In relation to that, we can conclude that explanatory power is high for the equation. It showed that one percent change in oil export rate lead to decrease 13% in agricultural value added. Therefore oil exports have negative effects on agricultural value added and is regarded as an important factor in Iran's agricultural value added.