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

39 Pages Posted: 22 Feb 2013

See all articles by Kamiar Mohaddes

Kamiar Mohaddes

University of Cambridge - Judge Business School; University of Cambridge - King's College, Cambridge

M. Hashem Pesaran

University of Southern California - Department of Economics

Date Written: February 21, 2013

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.

Keywords: oil price volatility, oil income, rent seeking, inflation, macroeconomic policy

JEL Classification: E020, N150, Q320

Suggested Citation

Mohaddes, Kamiar and Pesaran, M. Hashem, One Hundred Years of Oil Income and the Iranian Economy: A Curse or a Blessing? (February 21, 2013). Available at SSRN: https://ssrn.com/abstract=2221860 or http://dx.doi.org/10.2139/ssrn.2221860

Kamiar Mohaddes

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

University of Cambridge - King's College, Cambridge ( email )

King's Parade
Cambridge, CB2 1ST
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

M. Hashem Pesaran (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

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