Dynamics between economic growth, labor, capital and natural resource abundance in Iran: An application of the combined cointegration approach

Abstract

This paper discusses the missing case of Iran and tests the resource curse hypothesis using the updated time-series data over the extended period of 1965–2011. This study incorporates economic growth as a function of natural resources, exports, capital and labor in a Cobb–Douglas production function. The results of Bayer-Hanck combined cointegration test confirm that the underlying variables are cointegrated, while the finding from the long-run analysis validate the resource curse hypothesis and suggest that the natural resource impede economic growth in Iran. A 1% increase in natural resource production results in a 0.47% decline in GDP. This suggests that the exploitation of natural resources negatively affects the competitiveness of other sectors and limits their ability to contribute to economic growth. Furthermore, the results of the causal analysis conclude that there is a feedback effect between natural resource abundance and economic growth. These findings are useful for the development of policy controls in the case of Iran.