Resource Curse and Power Balance: Evidence from Iran

Kjetil Bjorvatn 1 , Mohammad Reza Farzanegan 2  and Friedrich Schneider 3
  • 1 NHH Norwegian School of Economics, Bergen, Norway
  • 2 Department of the Middle East Economics, Philipps-University of Marburg, Center for Near and Middle Eastern Studies (CNMS), MACIE & CESifo, Marburg, Germany
  • 3 Department of Economics, University of Linz, Linz, Austria
Kjetil Bjorvatn, Mohammad Reza Farzanegan and Friedrich Schneider

Abstract

Empirical research shows that natural resources have a detrimental effect on economic growth, a phenomenon known as the “resource curse”. Competition between influence groups for access to the resource rents, that is, rent-seeking, is often blamed for this curse. In this article, we dig deeper into the link between political competition and the resource curse by studying the case of Iran from 1960 to 2007. We present a theoretical model demonstrating how the effect of rents on the economy depends on the balance of political power. The model shows that an increase in rents may lead to a sharp reduction in income when the distribution of power between influence groups is relatively balanced. The empirical evidence confirms the predictions of the model.

  • Alexeev, M., and R. Conrad. 2009. “The Elusive Curse of Oil.” The Review of Economics and Statistics 91:58698.

  • Alexeev, M., and R. Conrad. 2010. “The Natural Resource Curse and Economic Transition.” Economic Systems 35:44561.

    • Crossref
    • Google Scholar
    • Export Citation
  • Amuzegar, J. 2009. “Iran’s 20-Year Economic Perspective: Promises and Pitfalls.” Middle East Policy 16:4157.

    • Crossref
    • Google Scholar
    • Export Citation
  • Andersen, J. J., and S. Aslaksen. 2008. “Constitutions and the Resource Curse.” Journal of Development Economics 87:22746.

    • Crossref
    • Google Scholar
    • Export Citation
  • Barro, R. J. 1996. “Democracy and Growth.” Journal of Economic Growth 1:127.

  • Barro, R. J., and X. Sala-i-Martin. 2004. Economic Growth (second edition). Cambridge, MA: MIT Press.

  • Baum, C. F. 2006. An Introduction to Modern Econometrics Using Stata. College Station, TX: Stata Press.

  • Bayart, J. F. 1994. “Republican Trajectories in Iran and Turkey: A Tocquevillian Reading.” In Democracy without Democrats? The Renewal of Politics in the Muslim World, edited by G. Salamé, 28299. London: I.B. Tauris Publishers.

    • Google Scholar
    • Export Citation
  • Bjorvatn, K., and M. R. Farzanegan. 2013. Demographic Transition in Resource rich Countries: A Bonus or a Curse? World Development 45:33751.

    • Google Scholar
    • Export Citation
  • Bjorvatn, K., M. R. Farzanegan, and F. Schneider. 2012. “Resource Curse and Power Balance: Evidence from Oil-rich Countries.” World Development 40:130816.

    • Crossref
    • Google Scholar
    • Export Citation
  • Bjorvatn, K., and K. Selvik. 2008. “Destructive Competition: Factionalism and Rent-Seeking in Iran.” World Development 36:231424.

    • Crossref
    • Google Scholar
    • Export Citation
  • Block, S. A. 2001. “Does Africa Grow Differently?Journal of Development Economics 56:44367.

  • CBI. 2009. Central Bank of Iran Time Series Economic Database (first edition). Available at: http://tsd.cbi.ir/

    • Google Scholar
    • Export Citation
  • Elbadawi, I., and R. Soto. 2012. Resource Rents, Political Institutions and Economic Growth. ERF Working Paper 678, Cairo.

  • Esfahani, H. S., and H. Pesaran. 2009. “The Iranian Economy in the Twentieth Century: A Global Perspective.” Iranian Studies 42:177211.

    • Crossref
    • Google Scholar
    • Export Citation
  • Farzanegan, M. R. 2011. “Oil Revenue Shocks and Government Spending Behavior in Iran.” Energy Economics 33:105569.

    • Crossref
    • Google Scholar
    • Export Citation
  • Farzanegan, M. R., and G. Markwardt. 2009. “The Effects of Oil Price Shocks on the Iranian Economy.” Energy Economics 31:13451.

    • Crossref
    • Google Scholar
    • Export Citation
  • Frankel, J. F. 2010. The Natural Resource Curse: A Survey. NBER Working Paper, No. 15836.

    • Export Citation
  • Gheissari, A., and V. Nasr. 2006. Democracy in Iran: History and the Quest for Liberty. New York: Oxford University Press.

    • Crossref
    • Google Scholar
    • Export Citation
  • Hodler, R. 2006. “The Curse of Natural Resources in Fractionalized Countries.” European Economic Review 50:136786.

    • Crossref
    • Google Scholar
    • Export Citation
  • IFS. 2009. International Financial Statistics (online database). Washington, DC: International Monetary Fund.

    • Google Scholar
    • Export Citation
  • Karshenas, M., and H. Hakimian. 2005. “Oil, Economic Diversification and the Democratic Process in Iran.” Iranian Studies 38:6790.

    • Crossref
    • Google Scholar
    • Export Citation
  • Karshenas, M., and H. Hakimian. 2007. “Managing Oil Resources and Economic Diversification in Iran.” In Iran in the 21st Century: Politics, Economics and Confrontation, edited by H. Katouzian and H. Shahidi, 194216. London: Routledge.

    • Google Scholar
    • Export Citation
  • Lewis, P. G. 1995. “Poland and Eastern Europe: Perspectives on Party Factions and Factionalism.” In Factional Politics and Democratization, edited by R. Gillespie, M. Waller, and L. L. Nieto, 10224. Oregon: Frank Cass.

    • Google Scholar
    • Export Citation
  • Mavrotas, G., S. M. Murshed, and S. Torres. 2011. “Natural Resource Dependence and Economic Performance in the 1970–2000 Period.” Review of Development Economics 15:12438.

    • Crossref
    • Google Scholar
    • Export Citation
  • Montalvo, J. G., and M. Reynal-Querol. 2005. “Ethnic Polarization, Potential Conflict, and Civil Wars.” The American Economic Review 95:796816.

    • Crossref
    • Google Scholar
    • Export Citation
  • Noland, M. 2008. “Explaining Middle Eastern Political Authoritarianism I: The Level of Democracy.” Review of Middle East Economics and Finance 4:Article 1.

    • Crossref
    • Google Scholar
    • Export Citation
  • OPEC. 2012. The Annual Statistical Bulletin (ASB). Available at: http://www.opec.org/library/Annual%20Statistical%20Bulletin/interactive/current/FileZ/Main.htm

  • Ramsey, J. B. 1969. “Tests for Specification Errors in Classical Linear Least Squares Regression Analysis.” Journal of the Royal Statistical Society 31:35071.

    • Google Scholar
    • Export Citation
  • Sargan, J. 1958. “The Estimation of Economic Relationships Using Instrumental Variables.” Econometrica 26:393415.

  • Shahnawaz, S., and J. B. Nugent. 2004. “Is Natural Resource Wealth Compatible with Good Governance?Review of Middle East Economics and Finance 2:15991.

    • Crossref
    • Google Scholar
    • Export Citation
  • Torvik, R. 2002. “Natural Resources, Rent-Seeking and Welfare.” Journal of Development Economics 67:45570.

    • Crossref
    • Google Scholar
    • Export Citation
  • Vanhanen, T. 1997. Prospects of Democracy: A Study of 172 Countries. New York: Routledge Chapman & Hall.

  • Vanhanen, T. 2000. “A New Dataset for Measuring Democracy, 1810–1998.” Journal of Peace Research 37:25165.

    • Crossref
    • Google Scholar
    • Export Citation
  • World Bank. 2013. World Development Indicators (online database).

  • Zivot, E., and D. Andrews. 1992. “Further Evidence on the Great Crash, the Oil Price Shock, and the Unit-Root Hypothesis.” Journal of Business and Economic Statistics 10:25170.

    • Google Scholar
    • Export Citation
Purchase article
Get instant unlimited access to the article.
$42.00
Log in
Already have access? Please log in.


or
Log in with your institution

Journal + Issues

The Review of Middle East Economics and Finance (RMEEF) addresses applied original research in the fields of economics and finance pertaining to the MENA region (Middle East and North Africa), including Turkey and Iran. The journal also publishes articles that deal with the economies of neighboring countries and/or the relationship and interactions between those economies and the MENA region.

Search