Iranian Economic Review
Volume:24 Issue: 61, Autumn 2020

The relationship between financial development indexes and foreign direct investment is studied in this paper. The main objective is to examine the effects of financial development indicators in two groups (the financial markets index and the financial institution index) on the FDI absorption rate. The effects of these indicators have been evaluated in the form of a panel data model for 11 countries including (Saudi Arabia, Argentina, Sweden, Poland, Belgium, Iran, Thailand, Nigeria,  Austria,  Norway, and  Venezuela) in the period 1990 to 2014. The results show that when the financial institutional index including (FID, FIE), financial market index including (FMD), GDP & DCP increase the FDI increases, and when FIA, FMA & FME increase, the FDI decreases. So Expanding the capital market will increase FDI attraction in selected countries, and for countries with weak capital markets, the financial market access index and the financial institution efficiency index has a significant negative effect on FDI absorption and vice versa.

The income inequality convergence is the second part of neoclassical growth theory. The hypothesis predicts that income inequality among countries/provinces/regions disappear over the time. In this paper, the income inequality convergence is investigated among Iran’s provinces over the period 2000–2015. For this purpose, we employed parametric approach (GMM-system estimator of dynamic panel data model), and non-parametric approach (distribution dynamics). The distribution dynamics approach indicated that the Gini index of Iran’s provinces were converged toward unique steady state about 0.3, and the results of absolute β convergence hypothesis indicated that the Gini index of Iran’s provinces moved halfway to the steady state in about 17 years after 2015.

C onvention on Contracts for International Sales of Goods (CISG) contracts are essential for international trade as this ensures the principle of justice is met globally. Indonesia as a developing country should be aware of the international trade law, as the Indonesian legal system had remained largely unchanged from Dutch colonial heritage since a century and a half ago. Therefore, there is a current debate on whether Indonesia should ratify the CISG or not? This paper offers abundant of consideration in order to answer the question. The aims of this research are: 1) to determine why Indonesia has refrained from ratifying the CISG up to now to, 2) To determine current pressures on Indonesia to ratify CISG, 3) to assess potential advantages of ratification, 4) to assess potential disadvantages of ratification, and 5) To make recommendations with respect to reservations that Indonesia should consider. This paper employs research methods by systematically reviewing the relevant literature. Inclusion criteria will be that (a) sources contain the key terms of “Indonesia” and/or “CISG”, (b) sources are published in English, (c) sources are more recent than 2001. It is discovered that decision makers in Indonesia face the difficult choice of whether staying with an embedded system of rules for contractual disputes of an international or to keep up with the CISG. The majority of opinion appears to suggest that Indonesia needs to reform its economic legislation and ratifying the CISG at the same would be prudent. The challenges for decision makers is choosing an appropriate time and giving the judiciary meaningful instruction on the interpretation of key provisions.

Energy as an input of production is one of the main production factors in Iranian economic growth. Unfortunately, this growth leads to the high energy intensity in economic sectors in which its management is essential for policymakers and planners in Iran. One of the main issues in energy management is the impact of technological progress on saving energy. Respectively, this study is to analyze the relation of energy intensity and technological progress by Cob-Douglas production function between 1979 and 2015 for the Iranian agriculture, industry, and service sector with using panel data analysis and growth accounting model. The results indicate that technological progress will reduce the growth rate of energy intensity in the industry sector by 6.1%, in the agriculture sector by 8.9%, and in the service sector by 7.2%. Also, unlike the agriculture and service sector, the impact of technological progress on energy saving in the industry sector explains only 64% of total variations. The rest of changing in the energy intensity of the industrial sector is about 36% due to a decline in labor employment during the study period.

This empirical study intends to examine the behavior of oil prices on Malaysian economic growth whether nonlinearity implies. The dynamic models of Linear and Nonlinear Autoregressive Distribution Lags (ARDL and NARDL) are used to estimate the models. The study used annual data from 1975 to 2015. The study used the real Malaysian spot oil price (Miri) as oil price unlike. The results from the linear model revealed that oil prices positively increase economic growth both in the short-run and the long-run. To achieve our objective, the NARDL estimator was used to detect the impact of positive and negative changes in oil prices. The results reveal that there is nonlinear relation among the variables in the long-run relationship as the evidence of cointegration was found. Increases in oil price boost economic growth positively while a decrease in oil price is not as indicate insignificantly. The error correction term confirms the results to indicate negative, significant, and less than 1 percent.  That is the speed of adjustment after the oil price shock. The results have important policy implications, exposed that the impacts of oil price changes (positive and negative) are not necessarily equal.

The purpose of this paper is to estimate the output gap and NAIRU for Iran's economy, both of which are among the most important variables in determining the economic status. Since these variables are unobservable, to estimate them, one needs modern econometric techniques rather than conventional tools. For this reason, this paper uses the Kalman filter tool in the form of a state-space model. Since there are several different specifications for a state-space structure, seven different models are tested by using seasonal data from 1989 to 2014. Results show that only two specifications have suitable estimation results. The first one is a structural model consisting of output and unemployment rate decomposition, plus the relationship between the inflation rate and the output gap in the form of the Phillips curve, and the second is a system that only includes unemployment rate decomposition. The early model can show the periods of inflationary recession between 1992 and 1995, and a severe economic recession during the period of 2010–2013 due to economic sanctions imposed on Iran. The latter model can depict NAIRU gap fluctuations following the inflation fluctuations. In addition to the compatibility of these results with what is observed in reality, the parameters are also statistically significant.

The exchange rate is always interacting with internal and external variables of economy. So the relationship between the exchange rate volatility and the trade flows is one of the considerable issues in international economics. The increase and decrease of the exchange rate volatility create different effects on trade flows. The main objective of this paper is to study the symmetric and asymmetric effects of exchange rate volatility on industrial trade flows in Iran. In this paper, the symmetric and asymmetric effects of exchange rate volatility on Iran’s export and import industries (i.e. 9 industries exporting to China and 12 industries importing from China) are estimated over the period 1992-2016. Linear ARDL is used to evaluate the symmetric effects, and nonlinear ARDL approach is used to study the asymmetric effects. Results show that out of the 21 industries, almost half of the import and export industries have asymmetric effects of exchange rate volatility. Also, based on the results, the asymmetric effects vary by industry. Most of the investigated industries in this study use the exchange rate volatility as a factor for profitability and, despite volatility in exchange rates, increase their business. Therefore, this study is confirmed in most of the approved surveyed industries, where the risk theory is a portfolio.

This paper is to develop a quantitative monetary DSGE model with financial intermediaries and deals with the endogenously determined balance sheet constraints. Moreover, the present paper studies a DSGE model with financial intermediation as in Gertler and Karadi (2011), a monopolistically competitive banking sector to investigate the role of banks in the propagation of disturbances, and to assess the importance of shocks to the banking sector and to the financial system in explaining economic fluctuations in Iran. The model is estimated using Bayesian techniques. According to the findings, the banking sector attenuates the effects of demand shocks (i.e. monetary policy shock), strengthens the effects of supply shocks (i.e. technology shock) at the national level, and amplifies the transmission of shocks in Iranian economy. Furthermore, credit shocks in the banking system and financial shocks are the important sources of macroeconomic fluctuations in Iran. Results show that financial shock is more important in explaining the variation in the lending rate. The nominal deposit rate and financial leverage reduce by this shock and, as expected, the return equity capital rate reduces too.

This paper, at first, examines the determinants of the labor income share (LIS) and second calculates the own, cross, and output elasticities of the labor force demand for three sizes of firms in Iran’s industry: 10-49 employees, 50-99 employees, and more than 100 employees. Since the dependent variable was limited to the interval 0 and 1, a Fractional Panel Probit technique has been used for the period 2004-2014 and provincial level. The findings from the first section of all groups showed that the relation between labor share income and wages, capital prices, and the ratio of skilled to non-skilled employees is positive. Labor income share is reduced by increasing real output, tax, the premium paid, and the value of raw materials. The share of labor income is reduced by increasing production can make sense that the rising in production is more capital-intensive than labor-intensive, and leads to a reduction of the labor income share. In the second part, the own wage elasticity was negative for all groups. The relationship between labor and capital price was positive that implies substitution elasticity between them. There is a positive sign for output-employment elasticity. The nonlinear relationship among the elasticities is consistent with our finding that within all groups, small and large firms have more own and output elasticities. There is a U-shape relationship between firm size and elasticities. In reverse, cross elasticity is high for medium-firm size. Based on research results and since the labor market of Iran is suffering from labor demand shortage, some suggestion to the economic policymaker may be helpful such as applying appropriate facility to increase industrial growth, eliminating production barriers, reducing the risk of investment, and improving human resources skills following the requirements of industrial sectors.

Economic growth is one of the goals of development in the economic plans of every country. Achieving self-development in OPEC member takes precise awareness of the amount and cause of the impact of economic variables on each other and it is, determining the policies and efficient, appropriate strategies for each case. Among these variables, oil revenues, total government expenditure, government expenditure for education, government expenditure for health, and economic growth could be mentioned. An examination of the trend of changes in health expenditure in Iran shows up until 2011. After that, there has been a leap in these expenditures. The share of government education expenditure in the total government budget in Iran has been showing a steady decline in these expenditures. panel data, we study the relationship between health expenditure and education expenditure and economic growth in OPEC countries and Iran from 2004 to 2016. Hence, the panel data method has been applied to estimate models and the panel VAR method has been applied to examine the causality relationships between variables. The results show a positive meaningful relationship between oil revenues, total government expenditure, government expenditure for education, government expenditure in health, and economic growth of OPEC countries and Iran. Furthermore, the result of the Granger Causality test suggests that there is a practical, mutual relationship between oil revenues and economic growth, total government expenditure and economic growth, and also a practical one-sided relationship of economic growth with government expenditure for education and also one-sided relationship oeconomic growth with government expenditure for health in OPEC countries and Iran.

This paper is to study the effect of key macroeconomic shock variables including exchange rate, broad money, stock price index, and supply shock effect on GDP growth rate in Iran by using a novel econometric method namely sign-restricted vector autoregressive (SRVAR). We use 5 variables in the model including GDP growth rate, broad money, exchange rate, stock price index, and inflation rate as well as quarterly data from 1370Q2 to 1395Q4 (1991Q3–2017Q1). We identify shocks by using Arias et al. (2014) algorithm. The empirical findings from impulse response functions indicate that negative supply shock declines the growth rate for about 5 periods. Positive exchange rate shock reduces the growth rate for about 4 periods and thereafter raises the growth rate. The monetary shock declines the growth rate after a short period. A positive stock market shock has a positive effect on the growth rate for about 3 periods, and thereafter decreases it. The forecast error variance decomposition (FEVD) indicates that the negative supply shock, monetary shock, and exchange rate shocks are the most important explainers of the GDP growth rate shock.

This paper aims to estimate Iran’s time-varying Non-Accelerating Inflation Rate of Unemployment (NAIRU) over the period 1986–2018. The NAIRU is estimated step by step starting with the constant NAIRU and then the time-varying NAIRU. The time-varying NAIRU is estimated by the Kalman filter and is compared to HP filter estimates. This model relies on the standard “triangle model” approach that includes various measures of supply and demand shocks in the specification of the Phillips curve. Results show that the NAIRU has been raised during the period, and according to the econometric results, there is a structural unemployment gap in the long-run, and the actual unemployment rate is approaching full employment[Z1] . In other words, there is not any significant gap between the actual unemployment rate and the estimated one (NAIRU). It shows that the high rate of unemployment is related to the structural elements and cannot be reduced by exerting monetary policies in long run. However, what these policies do in short term is reduce the unemployment rate temporarily and in long run is increasing inflation.