Majid Aghaei; Saeed Rasekhi; Sara Rangber
Abstract
Despite relative development in financial institutions, and the abundance of financial resources (income from oil sales), Iran has still struggled to experience high and sustainable economic growth rates, even experiencing negative growth rates in recent years. Therefore, investigating the ...
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Despite relative development in financial institutions, and the abundance of financial resources (income from oil sales), Iran has still struggled to experience high and sustainable economic growth rates, even experiencing negative growth rates in recent years. Therefore, investigating the influential factors in the relationship between financial development and economic growth is crucial. Accordingly, this study examines the role and significance of oil resources (oil course) on the relationship between financial development and economic growth through investment channels using the ARDL bounding test during the period from 1980 to 2020. The findings indicate that while financial development positively and significantly impacts investment, the oil curse weakens this relationship, suggesting an indirect negative impact of the oil curse on the financial development-economic growth nexus via investment channels in Iran. The interactive variable of financial development and the oil curse also had a negative and significant impact on investment during the examined period, indicating the financial system's inability to allocate resources effectively towards productive investments. Based on these results, it can be stated that the oil curse has affected the functioning of the financial sector in the Iranian economy and, by making this sector inefficient, has had a negative impact on investment, thus weakening the relationship between economic growth and financial development.
Introduction
Natural resources are considered one of the most important national wealth assets globally. Initially, it may be presumed that abundant revenues from natural resources can generate wealth for a country, leading to economic progress and poverty reduction, thus serving as a significant factor in accelerating investment and subsequent economic growth. However, empirical observations in some cases contradict this claim (Sachs and Warner, 2001; Saleh et al., 2020). The detrimental effect of governments' dependence on natural resource revenues has long been of interest to economists and policymakers. Experience shows that natural wealth alone is neither a necessary nor a sufficient factor for economic prosperity and advancement, as evidenced by affluent countries such as Hong Kong, Japan, Singapore, and Switzerland, which have not derived their national wealth from natural resources (Abeysinghe, 2001). Studies indicate that the common denominator among all countries that have benefited greatly from natural resources is the presence of a well-functioning and institutionalized financial system, which channels revenues from natural resources towards productive and infrastructural investments, thereby promoting production growth.
Revenues derived from natural resources, given the development of institutions and financial institutions, and overall financial system development, are effectively allocated to productive economic investments. With increased investment in infrastructure, it strengthens the relationship between financial development and economic growth. On the other hand, abundant revenues from natural resources, if not optimally allocated, can weaken the relationship between financial development and economic growth (Nili & Rastad, 2007). Despite possessing abundant income from natural resources, Iran experienced unstable economic growth over the past three decades. Considering that most studies conducted in Iran have acknowledged the positive relationship between financial development and economic growth, awareness of the profound effects of natural resources on the relationship between financial development and economic growth appears essential for adopting appropriate policies. Therefore, this study endeavors to investigate and analyze the impact of natural resources on the relationship between economic growth and financial development through investment channels. Top of Form
Methods and Material
Considering previous studies such as Sachs and Warner (1999), Harchaoui et al. (2005), Nili and Rastad (2007), and Badiab et al. (2016), along with the theoretical foundations of the research, the model under investigation in this study is based on the neoclassical growth framework. The research modeling will be conducted in several stages using various equations to achieve the main research objective. Initially, the direct impact of oil dependency (resource curse) on economic growth will be examined. Subsequently, in order to investigate the role of investment in the relationship between financial development and economic growth in Iran, the role of investment will be explored, taking into account the influence of oil dependency (resource curse) on this relationship. The degree of indirect influence of oil dependency (resource curse) on the relationship between financial development and economic growth will be determined through the investment channel.
To analyze the empirical long-run and short-run relationship between the model variables during the period from 1980 to 2020 in this study, the Autoregressive Distributed Lag (ARDL) method, introduced by Pesaran et al. (2001), will be utilized.
Results and Discussion
The results obtained from the research indicate that financial development has had a positive impact on economic growth during the examined period, but it is not statistically significant. However, the impact of natural resource abundance and per capita capital on economic growth during the examined period is positive and significant. The estimation of influential factors on investment reveals a positive and significant effect of financial development on investment during the examined period. Furthermore, the coefficient of the interactive variable between financial development and the resource curse suggests that the resource curse weakens the negative relationship between financial development and investment in Iran. This indicates the indirect impact of the resource curse on the relationship between financial development and economic growth through investment in Iran. The interactive variable of financial development and the resource curse also has a negative and significant impact on investment, suggesting that an increase in financial development in the long run leads to a reduction in the positive impact of natural resource abundance on investment in Iran.
Conclusion
Based on the results, it can be said that the financial and banking system in Iran has not been able to channel oil revenues towards productive activities effectively, and resource allocation has not been adequately addressed. The presence of the resource curse has indirectly affected the financial sector, resulting in negative impacts on investment and consequently on the relationship between economic growth and financial development. Additionally, natural resource abundance alone has a positive and significant impact on investment. With increasing oil revenues, government infrastructure expenditures and loans to the private sector also increase, leading to increased investment. Based on the results obtained, signs of the resource curse in the Iranian economy are observable indirectly, and the resource curse has weakened the relationship between financial development and economic growth.
Policy recommendations include focusing on developing the financial system and enhancing the efficiency of the banking sector to better direct financial resources towards productive investments. Additionally, diversifying the economy and developing various sectors, such as industry, services, and agriculture, are crucial to mitigating the risks associated with the resource curse.This can be achieved by increasing the efficiency of financial institutions through enhancing education and efficient resource management.
Habib Shahbazi; Hossein Moradimokhles
Abstract
In economic growth and development literature, the role of human capital and its development is always considered with great importance. One of the most important types of education in human capital creation is primary (elementary and secondary) education, which is invested by public sector and since ...
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In economic growth and development literature, the role of human capital and its development is always considered with great importance. One of the most important types of education in human capital creation is primary (elementary and secondary) education, which is invested by public sector and since primary education has comprehensive role for society, it is also referred to as general education. Therefore, the role and contribution of public education on GDP and economic growth is one of the fundamental questions for economists in the field of education. There are always many questions about general education. For example, given the budgetary constraints, how much investment should be made in the field of public education? What is the impact of investment and budget allocation to this sector on economic growth? Does spending in public education has led to development of human capital? Do the educational conditions i.e. economies of scale in education and society conditions i.e. risk-taking of individuals affect the impact of general education on human development? These questions are addressed in this paper, with the focus on the effects of different risk-taking scenarios and economies of scale in education on human capital development and economic growth. In this research, we have further developed Teles and Andrade (2008) model to examines the contribution of government public expenditure on primary and secondary education (Ministry of Education) on economic growth in Iran based on various risk-taking and economies of scale in educational scenarios for year 2016. Based on our results, the average contribution of general education on economic growth was 1.141 percentage points with different exact values in different risk-aversion scenarios. But with decreasing risk aversion, primary education contribution on economic growth will increase. In different situations, the effect of general education on economic growth has always been positive but when there is a decreeing return on human capital in national production, there is a negative contribution for risky people. A 1.141 percentage point of primary education contribution to economic growth indicate that 13.7 percent of economic growth in year 2016 (3.8 percent) was the result of investing in primary (elementary and secondary) education.
Fathollah Tari; Somayeh Jafari
Volume 14, Issue 55 , January 2015, , Pages 137-156
Abstract
Every community produces goods and provides services, and distributes these products and services for end-use based on an instruction or certain order. This performance for many reasons varies from one society to another. The current research studies the impact of Khums on consumption and investment ...
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Every community produces goods and provides services, and distributes these products and services for end-use based on an instruction or certain order. This performance for many reasons varies from one society to another. The current research studies the impact of Khums on consumption and investment based on approach of Kaldor model. The proposed model assumes that the economy is managed by the private sector, and our target population is Islamic community. In this community, the Islamic Republic also has been established in a manner that in this kind of economy, the interest rate has been abrogated, and all economy activities based on Mudaraba or Musharaka. On the other hand, the majority of consumers in the Islamic society were affected by Islamic instruction, and they fulfil their religious duty, and pay the Khoums. The Islamic government is trustees of collecting and distributing Khums. The results have shown that it is possible to achieve steady growth in Islamic Economics, and the existence of Khoums is not a barrier to consistent growth status.
Mohammad Ghasem Rezaee; Mahboubeh Sabzrou; Mohammad Rezaee-Pour
Volume 13, Issue 51 , January 2014, , Pages 163-187
Abstract
In this paper, we focus on two major questions about tax incentives: 1) Do the countries compete over tax incentives in a same way as they compete over tax rates? ; 2) Do the offered tax incentives results in attracting investment and increasing economic growth? The results of testing the first question, ...
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In this paper, we focus on two major questions about tax incentives: 1) Do the countries compete over tax incentives in a same way as they compete over tax rates? ; 2) Do the offered tax incentives results in attracting investment and increasing economic growth? The results of testing the first question, in which spatial econometric technique for panel data and Maximum Likelihood Estimation (MLE) Method were used, indicate that the developing countries compete over tax rates and tax holidays (and don’t compete over investment rebates); In other words, governments consider other states’ tax policies as a benchmark for judging their own tax policies. The results of testing the second question, in which econometric techniques of dynamic data and Generalized Moments Method (GMM) were used, indicate that tax rates and tax holidays influence foreign direct investment while investment rebates don’t have such an effect and only tax rates have significant relationship with private sector investment and economic growth. Tax incentives which were tested here include tax rates reduction, tax holiday and investment rebates and empirical evidence is based on time period 1985- 2008 and the data for 45 developing countries.
