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Modeling Dutch Disease in the Economy of Iran: A Computable General Equilibrium Approach

Author

Listed:
  • Manzoor, Davood
  • Haqiqi, Iman
  • Aghababaei, Mohammad

Abstract

In this paper, we will study the impacts of a counterfactual scenario of an increase in oil revenues on the price levels, activity levels, imports and exports in Iran. Our focus is on non-traded sectors, household welfare, and expenditure indices in the framework of a Computable General Equilibrium (CGE) model. The model is calibrated based on the 2001 Micro Consistent Matrix assuming Iran as a small open economy. The model consists of 11 production sectors, urban households, rural households, government, capital formation, exports, and imports. We concentrate on non-traded products especially rental services, public services, and construction sectors. Since part of the outputs of the construction sector relates to the capital value of buildings, we divided the demand for the construction sector into consumption and investment (seeking capital gain) purposes. In this study, we simulate the impact of a 30% increase in annual oil revenues. Based on the results, this shock leads to an increase in activity levels in the nontraded sectors and a decline in the traded sectors activity levels. Services and manufacturing show the highest increases in import levels at respectively 24% and 22%. Except for the oil and gas sector, all productive sectors experience declining exports. Public services, water, and construction sectors register the highest price increases. Results are robust to production elasticity of substitution choice, while they are sensitive to the elasticity of substitution between imports and domestic output.

Suggested Citation

  • Manzoor, Davood & Haqiqi, Iman & Aghababaei, Mohammad, 2012. "Modeling Dutch Disease in the Economy of Iran: A Computable General Equilibrium Approach," MPRA Paper 95821, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95821
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    References listed on IDEAS

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    2. Haqiqi, Iman & Bahalou, Marziyeh & Shamsaee, Arezoo, 2017. "An Economic General Equilibrium Model for Evaluation of Production Support Policies in Developing Countries," MPRA Paper 95865, University Library of Munich, Germany.
    3. Isiaka Akande Raifu & Alarudeen Aminu & Abiodun O. Folawewo, 2020. "Investigating the relationship between changes in oil prices and unemployment rate in Nigeria: linear and nonlinear autoregressive distributed lag approaches," Future Business Journal, Springer, vol. 6(1), pages 1-18, December.
    4. Allah Morad Seif & Hossein Panahi & Davoud Hamidi Razi, 2017. "An Estimation of The Impact of Economic Sanctions and Oil Price Shocks on Iran-Russian Trade: Evidence from a Gravity- VEC Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(3), pages 469-497, Summer.
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    More about this item

    Keywords

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    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade

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