IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Oil Exports and the Iranian Economy

Listed author(s):
  • Hadi Salehi Esfahani
  • Kamiar Mohaddes
  • M. Hashem Pesaran

This paper develops a long run growth model for a major oil exporting economy and derives conditions under which oil revenues are likely to have a lasting impact. This approach contrasts with the standard literature on the "Dutch disease" and the "resource curse", which primarily focus on short run implications of a temporary resource discovery. Under certain regularity conditions and assuming a Cobb Douglas production function, it is shown that (log) oil exports enter the long run output equation with a coefficient equal to the share of capital. The long run theory is tested using a new quarterly data set on the Iranian economy over the period 1979Q1-2006Q4. Building an error correction specification in real output, real money balances, inflation, real exchange rate, oil exports, and foreign real output, the paper finds clear evidence for two long run relations: an output equation as predicted by the theory and a standard real money demand equation with inflation acting as a proxy for the (missing) market interest rate. Real output in the long run is shaped by oil exports through their impact on capital accumulation, and the foreign output as the main channel of technological transfer. The results also show a significant negative long run association between inflation and real GDP, which is suggestive of economic inefficiencies. Once the effects of oil exports are taken into account, the estimates support output growth convergence between Iran and the rest of the world. We also find that the Iranian economy adjusts quite quickly to the shocks in foreign output and oil exports, which could be partly due to the relatively underdeveloped nature of Iran’s financial markets.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-11/cesifo1_wp2843.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2843.

as
in new window

Length:
Date of creation: 2009
Handle: RePEc:ces:ceswps:_2843
Contact details of provider: Postal:
Poschingerstrasse 5, 81679 Munich

Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Christa N. Brunnschweiler & Erwin H. Bulte, 2006. "The Resource Curse Revisited and Revised: A Tale of Paradoxes and Red Herrings," CER-ETH Economics working paper series 06/61, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. O. Liu & Olumuyiwa S Adedeji, 2000. "Determinants of Inflation in the Islamic Republic of Iran; A Macroeconomic Analysis," IMF Working Papers 00/127, International Monetary Fund.
  3. Valadkhani, Abbas, 2006. "Unemployment Conundrum in Iran," Economics Working Papers wp06-15, School of Economics, University of Wollongong, NSW, Australia.
  4. Stephane Dees & Filippo di Mauro & M. Hashem Pesaran & L. Vanessa Smith, 2006. "Exploring the International Linkages of the Euro Area: a Global VAR Analysis," Computing in Economics and Finance 2006 47, Society for Computational Economics.
  5. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1997. "Structural Analysis of Vector Error Correction Models with Exogenous I(1) Variables," Cambridge Working Papers in Economics 9706, Faculty of Economics, University of Cambridge.
  6. Tiago V. de V. Cavalcanti & Kamiar Mohaddes & Mehdi Raissi, 2011. "Commodity Price Volatility and The Sources of Growth," Working Papers 597, Economic Research Forum, revised 07 Jan 2011.
  7. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
  8. Lane, Philip R & Tornell, Aaron, 1996. "Power, Growth, and the Voracity Effect," Journal of Economic Growth, Springer, vol. 1(2), pages 213-241, June.
  9. Philippe Aghion & Philippe Baccheta & Romain Ranciere & Kenneth Rogoff, 2006. "Exchange Rate Volatility and Productivity Growth: The Role of Financial Development," Swiss Finance Institute Research Paper Series 06-16, Swiss Finance Institute.
  10. Elyas Elyasiani & Wanli Zhao, 2008. "International interdependence of an emerging market: the case of Iran," Applied Economics, Taylor & Francis Journals, vol. 40(4), pages 395-412.
  11. Elliott, Graham, 1999. "Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-783, August.
  12. Farshid Mojaver, 2009. "Sources of economic growth and stagnation in Iran," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 18(2), pages 275-295.
  13. Collier, Paul & Hoeffler, Anke, 2000. "Greed and grievance in civil war," Policy Research Working Paper Series 2355, The World Bank.
  14. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
  15. Lee, Kevin C. & Pesaran, M. Hashem, 1993. "Persistence profiles and business cycle fluctuations in a disaggregated model of U.K. output growth," Ricerche Economiche, Elsevier, vol. 47(3), pages 293-322, September.
  16. Gredenhoff, Mikael & Jacobson, Tor, 2001. "Bootstrap Testing Linear Restrictions on Cointegrating Vectors," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 63-72, January.
  17. Mehrara, Mohsen & Oskoui, Kamran Niki, 2007. "The sources of macroeconomic fluctuations in oil exporting countries: A comparative study," Economic Modelling, Elsevier, vol. 24(3), pages 365-379, May.
  18. Carlos A Leite & Jens Weidmann, 1999. "Does Mother Nature Corrupt? Natural Resources, Corruption, and Economic Growth," IMF Working Papers 99/85, International Monetary Fund.
  19. Francesco Caselli & Tom Cunningham, 2009. "Leader behaviour and the natural resource curse," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 628-650, October.
  20. Leo Bonato, 2007. "Money and Inflation in the Islamic Republic of Iran," IMF Working Papers 07/119, International Monetary Fund.
  21. Garratt, A. & Lee, K. & Pesaran, M. H. & Shin, Y., 1998. "A Long-run Structural Macro-econometric Model of the UK," Cambridge Working Papers in Economics 9812, Faculty of Economics, University of Cambridge.
  22. Pesaran, M H, 1984. "Macroeconomic Policy in an Oil-exporting Economy with Foreign Exchange Controls," Economica, London School of Economics and Political Science, vol. 51(23), pages 253-270, August.
  23. Kia, Amir, 2006. "Deficits, debt financing, monetary policy and inflation in developing countries: Internal or external factors?: Evidence from Iran," Journal of Asian Economics, Elsevier, vol. 17(5), pages 879-903, November.
  24. Garratt, Anthony & Lee, Kevin & Pesaran, M. Hashem & Shin, Yongcheol, 2006. "Global and National Macroeconometric Modelling: A Long-Run Structural Approach," OUP Catalogue, Oxford University Press, number 9780199296859.
  25. Haug, Alfred A., 1996. "Tests for cointegration a Monte Carlo comparison," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 89-115.
  26. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
  27. Tiago de. V. Cavalcanti & Kamiar Mohaddes & Mehdi Raissi, 2011. "Does oil abundance harm growth?," Applied Economics Letters, Taylor & Francis Journals, vol. 18(12), pages 1181-1184.
  28. Amir Kia, 2006. "Deficits, Debt Financing, Monetary Policy and Inflation in Developing Countries: Internal or External Factors? Evidence from Iran," Carleton Economic Papers 06-03, Carleton University, Department of Economics, revised Nov 2006.
  29. Perron, Pierre & Rodriguez, Gabriel, 2003. "GLS detrending, efficient unit root tests and structural change," Journal of Econometrics, Elsevier, vol. 115(1), pages 1-27, July.
  30. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  31. Cavalcanti, T.V.V. & Mohaddes, K. & Raissi, M., 2009. "Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis," Cambridge Working Papers in Economics 0946, Faculty of Economics, University of Cambridge.
  32. Stanley Fischer, 1983. "Inflation and Growth," NBER Working Papers 1235, National Bureau of Economic Research, Inc.
  33. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  34. Assenmacher-Wesche, K. & Pesaran, M.H., 2008. "A VECX* Model of the Swiss Economy," Cambridge Working Papers in Economics 0809, Faculty of Economics, University of Cambridge.
  35. Binder, Michael & Pesaran, M Hashem, 1999. "Stochastic Growth Models and Their Econometric Implications," Journal of Economic Growth, Springer, vol. 4(2), pages 139-183, June.
  36. López-Villavicencio, Antonia & Mignon, Valérie, 2011. "On the impact of inflation on output growth: Does the level of inflation matter?," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 455-464, September.
  37. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
  38. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
  39. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  40. Rick van der Ploeg & Tony Venables, 2009. "Symposium on resource rich economies Introduction," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 625-627, October.
  41. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
  42. Torbjorn I. Becker, 1999. "Common Trends and Structural Change; A Dynamic Macro Model for the Pre- and Postrevolution Islamic Republic of Iran," IMF Working Papers 99/82, International Monetary Fund.
  43. Karim M. Abadir & Kaddour Hadri & Elias Tzavalis, 1999. "The Influence of VAR Dimensions on Estimator Biases," Econometrica, Econometric Society, vol. 67(1), pages 163-182, January.
  44. Binder, M. & Pesaran, M.H., 1996. "Stochastic Growth," Cambridge Working Papers in Economics 9615, Faculty of Economics, University of Cambridge.
  45. Mangal Goswami & Oya Celasun, 2002. "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran," IMF Working Papers 02/205, International Monetary Fund.
  46. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
  47. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 335-376, October.
  48. Bonato Leo, 2008. "Money and Inflation in the Islamic Republic of Iran," Review of Middle East Economics and Finance, De Gruyter, vol. 4(1), pages 41-58, January.
  49. Razavi, Hossein, 1982. "Optimal rate of oil production for OPEC-member countries," Resources and Energy, Elsevier, vol. 4(3), pages 291-305, September.
  50. Esfahani, H.S. & Pesaran, M.H., 2008. "Iranian Economy in the Twentieth Century: A Global Perspective," Cambridge Working Papers in Economics 0815, Faculty of Economics, University of Cambridge.
  51. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
  52. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May.
  53. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_2843. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.