Natural resources, rent seeking and economic development. An analysis of the resource curse hypothesis for Iran

ABSTRACT

This paper tests the political economy theory of the resource curse of the Iranian economy over the period 1984–2017. We find that natural resources dependence is harmful to economic development only if rent seeking activities exceed a minimum threshold. Empirical findings – based on Partial Least Square – Structural Equation Modelling approach – validate the hypothesis that institutions are decisive for the resource curse. According to our estimates, since 2012, rent seeking has surpassed this threshold, therefore, the ‘resource curse’ applies.

KEYWORDS:

• Rent seeking
• resource curse
• oil revenues
• structural equation modelling
• Iran

JEL classification:

• D72
• C39
• O13
• O53

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. For comprehensive surveys see, among the other, Van Der Ploeg (2011), Frankel (2012); Shao and Yang (2014), Havranek, Horvath, and Zeynalov (2016), Venables (2016), Badeeb, Lean, and Clark (2017), Kim and Lin (2017), Van Der Ploeg and Poelhekke (2017), Barbier (2019).

2. Havranek, Horvath, and Zeynalov (2016, 143) conclude, analysing more than six hundred regression specifications, that ‘approximately 40% of them report a negative and statistically significant effect, another 40% report no effect, and the remaining 20% report a positive and statistically significant effect of natural resources on economic growth’.

3. In particular, for Havranek, Horvath, and Zeynalov (2016) when empirical analysis explicitly control for quality of institutions, the empirical evidence that the natural resource is curse is less likely. In the same way, Boschini, Pettersson, and Roine (2007) and Mehlum, Moene, and Torvik (2006a) state that in presence of good institutional quality, the negative effect of natural resources dependence on economic growth disappears as a consequence of decline of rent-seeking activities.

4. For a survey of this strand of literature see, among the others, Baland and Francois (2000), Torvik (2002, 2009), Mehlum, Moene, and Torvik (2006a), Bhattacharyya and Hodler (2010) and Matallah and Matallah (2016), Ahmadov and Guliyev (2016), Antonakakis et al. (2017), Abdulahi, Shu, and Khan (2019).

5. We omit the index of income equality (Gini_r) because statistically insignificant. The results are robust to this omission, consequently, we opt for a more parsimonious specification. See Appendix B for the results based on alternative models including index of equality among indicators of economic development (Figure B1) and switching the reflective measurement model to a formative definition of this latent construct (Figure B2).

6. The estimates are obtained by Smart PLS 3.2 developed by Ringle, Wende, and Becker (2015).

7. As robustness check, we estimate a model where Resource dependence was measured only by the indicator oil rents as percentage of GDP. Results are confirmed as shown in Appendix B – Figure B3.

8. In 2012 European and US institutions prohibited transactions with Iranian banks, restricting trade and investment towards the energy and transport sectors. In addition, Iran lost access to tens of billions of dollars of assets in accounts outside the country. In October 2012, Iranian currency lost about 80% of its value since 2011.

9. Compared to 2011, the value of oil production has decreased by 11%.

Additional information

Notes on contributors

Roberto Dell’Anno

Roberto Dell’Anno

University of Salerno - Department of Economics and Statistics.

Via Giovanni Paolo II, 132 - 84,084 – Fisciano (Sa) – Italy. Email: [email protected]

Birth date and place: 27 April 1975, Salerno, Italy.

Academic Position:

Associate Professor of Public Economics, Department of Economics and Statistics, University of Salerno, Italy.

Scientific Head of LaBETI (Research Laboratory of Economics and Technologies for Innovation), Department of Economics and Statistics, University of Salerno.

Education:

Ph. D. in Public Economics (2000 - 2003)

University of Salerno- Department of Economics and Statistics - Italy.

International Master in Economics & Complexity (2002 - 2004)

University of Barcellona (Spain), University of Roskilde (Denmark), University of Salerno (Italy).

Master in Economics and Finance (2000 - 2001)

University ‘Federico II’ - Naples, Italy.

Research Interest:

Shadow economy, Informality, Corruption, Fiscal Illusion, and Behavioural Public Economics.

Majid Maddah

Majid Maddah

Semnan University - Department of Economics.

Central Administration of Semnan University, Campus 1, Semnan, I. R. of Iran. Email: [email protected]

Birth date and place: 31 May 1971, Semnan, Iran.

Academic Positions:

Associate Professor of Economics; Faculty of Economic, Management and Administrative Sciences; Semnan University; Iran.

Head of Economics Department of Semnan University, Iran.

Education:

1997-2005: P.H.D in Economics, Fields of Econometrics and Public Sector Economics Allameh Tabatabaee University, Tehran.

1994-1997: Master of Science in Economics, Allameh Tabatabaee University, Tehran.

1990-1994: Bachelor in Theoretical Economics, Mazandaran University, Babolsar.

Title of Doctoral Thesis: The Economic Survey of Smuggling in Iran.

Teaching Experiences: Econometric; Macroeconomic; Public Economic.

Fields of Specialization: Public Economic, Informal Economy; Environmental Economy.