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

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  • Mohaddes, K.
  • Pesaran, M.H.

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.

Suggested Citation

  • Mohaddes, K. & Pesaran, M.H., 2013. "One Hundred Years of Oil Income and the Iranian Economy: A curse or a Blessing," Cambridge Working Papers in Economics 1302, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1302
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    3. Mohaddes, Kamiar & Raissi, Mehdi, 2017. "Do sovereign wealth funds dampen the negative effects of commodity price volatility?," Journal of Commodity Markets, Elsevier, vol. 8(C), pages 18-27.
    4. Mohaddes, M. & Nugent, J. & Selim, H., 2018. "Reforming Fiscal Institutions in Resource-Rich Arab Economies: Policy Proposals," Cambridge Working Papers in Economics 1848, Faculty of Economics, University of Cambridge.
    5. Mohaddes, Kamiar & Pesaran, M. Hashem, 2016. "Country-specific oil supply shocks and the global economy: A counterfactual analysis," Energy Economics, Elsevier, vol. 59(C), pages 382-399.
    6. Christian Dreger & Teymur Rahmani, 2016. "The impact of oil revenues on the Iranian economy and the Gulf states," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 40(1), pages 36-49, March.
    7. Amany El-Anshasy & Kamiar Mohaddes & Jeffrey B. Nugent, 2015. "Oil, Volatility and Institutions: Cross-Country Evidence from Major Oil Producers," Working Papers EPRG 1513, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    8. Mahadeo, Scott M.R. & Heinlein, Reinhold & Legrenzi, Gabriella D., 2019. "Energy contagion analysis: A new perspective with application to a small petroleum economy," Energy Economics, Elsevier, vol. 80(C), pages 890-903.
    9. Amiri, Hossein & Sayadi, Mohammad & Mamipour, Siab, 2021. "Oil Price Shocks and Macroeconomic Outcomes; Fresh Evidences from a scenario-based NK-DSGE analysis for oil-exporting countries," Resources Policy, Elsevier, vol. 74(C).
    10. Sidi Mohammed Chekouri & Abderrahim Chibi & Mohamed Benbouziane, 2017. "Algeria and the natural resource curse: oil abundance and economic growth," Middle East Development Journal, Taylor & Francis Journals, vol. 9(2), pages 233-255, July.
    11. Burney, Nadeem A. & Mohaddes, Kamiar & Alawadhi, Ahmad & Al-Musallam, Marwa, 2018. "The dynamics and determinants of Kuwait's long-run economic growth," Economic Modelling, Elsevier, vol. 71(C), pages 289-304.
    12. Guan, Lu & Zhang, Wei-Wei & Ahmad, Ferhana & Naqvi, Bushra, 2021. "The volatility of natural resource prices and its impact on the economic growth for natural resource-dependent economies: A comparison of oil and gold dependent economies," Resources Policy, Elsevier, vol. 72(C).
    13. Davood Danesh Jafari & Hamid Nazemian & Javid Bahrami & Mohammad Hassan Kheiravar, 2021. "Effect of Oil Revenues on Certain Macroeconomic Variables in Selected Oil-Exporting Countries: A Panel Data Approach," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 3-21.
    14. Dario Laudati & M. Hashem Pesaran, 2023. "Identifying the effects of sanctions on the Iranian economy using newspaper coverage," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 271-294, April.
    15. Mohammad Reza Farzanegan & Mohammad Habibpour, 2014. "Direct Distribution of Rents and the Resource Curse in Iran: A Micro-econometric Analysis," CESifo Working Paper Series 4824, CESifo.
    16. Ramiz Rahmanov, 2016. "Permanent and Temporary Oil Price Shocks, Macroeconomic Policy, and Tradable Non-oil Sector: Case of Azerbaijan, Kazakhstan, and Russia," Working Papers 1609, Central Bank of Azerbaijan Republic.
    17. Younes Nademi, 2018. "The resource curse and income inequality in Iran," Quality & Quantity: International Journal of Methodology, Springer, vol. 52(3), pages 1159-1172, May.
    18. Mohsen Mohaghegh & A. S. Valipour, 2021. "Triggering Economic Growth:Trade Liberalization as the Prominent Factor in Less-developed Countries," Business and Economic Research, Macrothink Institute, vol. 11(2), pages 252-265, June.

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    More about this item

    Keywords

    Oil price volatility; oil income; rent seeking; inflation; macroeconomic policy.;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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