Oil and Iranian Development

The main concern of this study was two-fold: (a) to compute the Iranian economy\u27s long-run growth potential consistent with full-capacity utilization of the output and stocks with the existing current and capital account matrices; and (b) to simulate the impacts that changing petroleum export levels have on capital formation, employment, and income distribution. The analysis proceeded by developing a closed dynamic interindustry model in order to compute the turnpike growth rate. The uniform or turnpike growth rate computed for the base current and capital account matrices was 1.7 percent per annum. This describes the long-run growth potential for Iran. Given the current and capital coefficients matrices and the uniform growth rate, the level of outputs for the planning period were calculated. The necessary investments which would make the 1.7 percent growth rate possible, were also computed. The input/output table, using the 1973 data base for Iran, was also used to measure the extent of the petroleum industry\u27s backward and forward linkages with the domestic economy. The findings of the study confirmed that the interindustry linkages of the petroleum sector with the rest of the economy were very weak. However, petroleum exports have a large effect on the Iranian economy through indirect influences. The impacts of petroleum exports on the Iranian economy were evaluated by measuring direct and indirect effects of exports and demand for the outputs of all industries. To relate impacts of changing petroleum export levels on the Iranian economy, the approximate level of exports of Iranian crude oil for the planning period was estimated. To find the proportion of the petroleum sector\u27s output which contributes to capital formation, the Leontief inverse matrix was used. The results showed that a significant portion of the total revenues of the oil sector should be allocated for capital formation purposes. However, since sectoral data on capital was not available for Iran at this time, changes in the capital account were not related to changing expectation, and changes in technical coefficients resulting from technological progress were not considered. The method suggested by Todaro1 was used to find the changes in output of each sector corresponding to various levels of oil exports and the changes in employment as a result of changes in output of each sector. This method implies that the level of employment in each industry is uniquely related to the amount of total output produced by that industry. Thus, to find the amount of labor employed in industry i, we merely multiply the corresponding labor coefficient by the total output of that industry. Income distribution concerns were addressed using estimates of the Gini Coefficient. On the basis of the income shares of each percentile group, the Gini Coefficient was found to be 0.58, indicating a significant inequality exists between groups in the Iranian economy. Impacts that changing petroleum export levels have on income distribution were measured using the Theil index. The Theil index is a logarithmic expression of the income, or sector income share, to sector employment ratio which indicates the degree of income inequality between sectors of the economy. This index was found to be 0.021 for the years 1981-1985. This indicates the degree of income inequality between the different sectors is not significant. Also, the effect of the changes of the levels of oil exports on the income inequality index is insignificant