Abstract
As a huge source of wealth, oil can serve as the engine of, or a barriers to, economic growth in oil-rich countries. The important issue is how to manage oil revenues while taking into account the welfare of future generations as a foundation of sustainable development. On the one hand, oil-exporters can lay the groundwork for sustainable development by allocating these revenues to infrastructural projects; on the other hand, they can create rents through corruption or mismanagement and thus create a strong barrier to the growth of macroeconomic indicators. Oil revenues have a significant role in Iran's economy and are the main source of government expenditures. Oil accounts for the bulk of the country's exports. One of the issues highlighted in Iran's 2025 Vision is to cut the country's dependence on oil revenues and finance spending through tax revenues, while allocating oil rents to efficient and productive investments. Therefore, the present research uses generalized method of moments (GMM) and autoregressive distributed lag (ARDL) to examines the effect of oil revenues on government expenditures and size in selected oil-exporting countries during 1980-2015 with an emphasis on Iran's economy. The results suggest that oil revenues with one lag have a significant positive effect on government expenditures and size in the selected oil exporters. Moreover, In the case of Iran, increase in oil revenues has significant short-run and long-run effects on government size.Keywords: Oil Revenues; Government Size; GMM; Oil-Exporting Countries; Iran's EconomyJEL Classification: Q43DOI: https://doi.org/10.32479/ijeep.10110
Highlights
Access to natural resources is a major factor in the output and economic development of countries
Given the importance of these issues, the present study investigates the effects of oil revenues on the size of government in selected oil-exporting countries with an emphasis on Iran’s economy
Analysis and Results for Selected Oil-exporting Countries This section examines the relationship between oil revenues and government size in selected oil-exporting countries
Summary
Access to natural resources is a major factor in the output and economic development of countries. In countries like Iraq and Iran, a vast amount of foreign currency from oil and gas exports are injected into the economy beyond its capacity and become central to economic policies; as a result, does it increase government expenditures, and expands government interventions in the economy and disrupts market performance. In most of these countries, these revenues are directly injected into the public sector to support government spending instead of being invested on infrastructures and institutions that would accelerate economic development. This, in turn, places the economy in the hands of politicians, and oil and other natural resources are used as means of consolidating political power (Sala-I-Martin and Subramanian, 2003)
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