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Analysing the Trade-GDP Nexus in Iran: A Bounds Testing Approach

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Abstract

This paper examines the major sources of economic growth in Iran using annual time series data (1960 to 2003). The time series properties of the data are analysed by Perron’s innovational outlier and additive outlier models. The empirical results based these models show that there is not enough evidence against the null hypothesis of unit root for all of the variables under investigation. Moreover, we found that the most significant structural breaks over the last four decades which have been detected endogenously in fact correspond to the regime change (e.g the 1979 Islamic revolution) and the Iraqi war in the 1980s. Finally, an ARDL methodology is employed to obtain the short and long-term determinants of economic growth. The results show that while the effects of gross capital formation and oil exports are highly significant, as expected, non-oil exports and human capital have an even smaller effect than had been anticipated.

Suggested Citation

  • Pahlavani, Mosayeb, 2005. "Analysing the Trade-GDP Nexus in Iran: A Bounds Testing Approach," Economics Working Papers wp05-25, School of Economics, University of Wollongong, NSW, Australia.
  • Handle: RePEc:uow:depec1:wp05-25
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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/doc/uow012208.pdf
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    References listed on IDEAS

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    1. Long, N.V. & Wong, K.Y., 1996. "Endogenous Growth and International Trade: A Survey," Discussion Papers in Economics at the University of Washington 96-07, Department of Economics at the University of Washington.
    2. Pesaran, M. H. & Smith, Ron P., 1998. "Structural Analysis of Cointegrating VARs," Cambridge Working Papers in Economics 9811, Faculty of Economics, University of Cambridge.
    3. Howard Pack, 1994. "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 55-72, Winter.
    4. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
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    6. van den Berg, Hendrik, 1997. "The relationship between international trade and economic growth in Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 1-21.
    7. Subrata Ghatak & Chris Milner & Utku Utkulu, 1997. "Exports, export composition and growth : cointegration and causality evidence for Malaysia," Applied Economics, Taylor & Francis Journals, vol. 29(2), pages 213-223.
    8. Grossman, Gene M. & Helpman, Elhanan, 1991. "Trade, knowledge spillovers, and growth," European Economic Review, Elsevier, vol. 35(2-3), pages 517-526, April.
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    10. 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.
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    13. J. S. L. McCombie & A. P. Thirlwall, 1997. "The Dynamic Harrod Foreign Trade Multiplier and the Demand-orientated Approach to Economic Growth: an Evaluation," International Review of Applied Economics, Taylor & Francis Journals, vol. 11(1), pages 5-26.
    14. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item

    Keywords

    structural break; unit root tests; ARDL method; Iranian economy;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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