Abstract
This paper explores the relation between oil revenues and economic growth in Iran using annual data for the period 1959-2008 to check whether this relation has a structural breakpoint effect. The results indicate the threshold level of growth rate of oil revenues above which oil revenues significantly slows growth is around 22% percent for Iran economy. In contrast, linear estimation without any allowance for threshold effects would misleadingly have us believe that an increase in the oil revenues increase the growth rate. Failure to account for nonlinearities conceal the resource curse in these countries particularly during extreme oil booms as suggested in previous studies.
Highlights
Since the first oil shock in 1973, almost the economic performance of Iran has been related to its natural resource wealth
The first step to explore the relation between the growth rate of oil revenues and economic growth is to test for the existence of a threshold effect in the relationship between real GDP growth and oil revenues using the likelihood ratio, LR0, discussed above
It can be shown that the value of R2 is maximized when the oil revenues growth structural point is 22%.The row LR0 in Table 1 gives the observed value of the likelihood ratio
Summary
Since the first oil shock in 1973, almost the economic performance of Iran has been related to its natural resource wealth. The economy has experienced relatively lower per capita GDP growth and higher income inequality. This may support this hypothesis that natural resources seem to have been more of a curse than a blessing for Iran. The economists have succeeded to give details about the sources of economic growth. Until now the relation of output with the oil revenues in oil exporting countries has remained debatable. The issue that whether oil revenues is blessing for economic growth or it is curse generates a significant debate both theoretically and empirically
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