Political economy of natural resources and governance in Iran [Elektronische Ressource] : an empirical investigation / vorgelegt von Mohammad Reza Farzanegan

TECHNISCHE UNIVERSITÄT DRESDEN
Fakultät Wirtschaftwissenschaften


Political Economy of Natural Resources and Governance in
Iran: An Empirical Investigation

Dissertation zur Erlangung des akademischen Grades


Dr.rer.pol.


vorgelegt von
Mohammad Reza Farzanegan
Master of Science
geboren am 24. Juli 1976
in Teheran

Gutachter
Prof. Dr. Marcel Thum
Prof. Dr. Christian von Hirschhausen

14. Juli 2009 Acknowledgements

This dissertation would not have been completed without the assistance and support of a
number of people. My admiration, gratitude and debt to Professor Marcel Thum, my
teacher, role model and friend, have grown continuously since I first discussed my PhD
proposal from Tehran in early 2004. Without his continuous support and
encouragement, I was not able to finalize this dissertation which began in April 2006 on
time. Also, special thanks to Professor Christian von Hirschhausen for his kind
acceptance to be my second referee.
I am indebted to my kind colleagues at the Faculty of Business and Economics of
Technische Universität Dresden, especially at the Chair of Public Economics for their
cooperation, encouragements and hospitality. Chapter two of this dissertation is a
jointwork with Dr. Gunther Markwardt. I learnt a lot over my joint-work and frequent
discussions with him. I must also appreciate the kind and constructive comments of my
collegue Christian Lessman. Thanks to Annabel Payne for reading and commenting on
different part of this dissertation. Special thanks to Babett Krausse for all of her efficient
administrative coordinations and cooperations from the very beginning of my project at
TU Dresden. I also enjoyed working with Andreas Buehn, Rodrigo Herrera, Heike
Auerswald, Dr. Marcus Dittrich, Professor Alexander Karmann, and Professor Friedrich
Schneider. I must also appreciate the kind advices of Dr. Arin Peren, especially for the
second chapter of this dissertation.
I am thinking of my beloved family in Iran. From a distance, I believe they pray for me.
Over my stay in Germany, I am indebted to Cornelia König. Very special thanks must
be given to her for continuous support and patience in days and nights, sadness and
happiness. I learnt a lot about the world of Germans and their culture through her.
There are many other people who directly or indirectly supported this work. To all of
them I want to express my heartfelt gratitude and thanks. Finally, I must acknowledge
the financial support of German Academic Exchange Service (DAAD) from the early
stages of my arrival in Germany. For sure, without their support, the implementation of
this dissertation was much harder.


Mohammad Reza Farzanegan
iiContents

1 Setting the Scene ....................................................................................................................1
1.1 Background ................................................................................................................................... 1
1.2 Outline of the dissertation and main findings ............................................................................... 4
2 Oil and the Iranian Economy: A Macroeconometric Analysis .........................................7
2.1. Introduction .................................................................................................................................. 7
2.2. Previous literature ...................................................................................................................... 15
2.3. Data and methodology ............................................................................................................... 20
2.3.1. Data..................................................................................................................................... 20
2.3.2. Empirical methodology 21
2.4. Empirical results......................................................................................................................... 26
2.4.1. Impulse response functions ................................................................................................. 26
2.4.2. Variance decomposition analysis (VDC) ............................................................................ 34
2.4.3. Robustness tests................................................................................................................... 37
2.5. Conclusions................................................................................................................................ 43
Appendix 2.A. Data sources and description .................................................................................... 44
Appendix 2.B. Coding of the dummy variables D1–D5 ................................................................... 45 C. Stationarity, cointegration, and optimal lag length tests........................................... 46
Appendix 2.D. Robustness tests........................................................................................................ 49
3 Factionalism, Oil and Economic Growth in Iran: Where is the Curse? ........................55
3.1. Introduction ................................................................................................................................ 55
3.2. Review of literature.................................................................................................................... 59
3.3. Empirical model and data........................................................................................................... 63
3.3.1. Econometric specification................................................................................................... 63
3.3.2. Measuring factionalism....................................................................................................... 65
3.4. Empirical results......................................................................................................................... 67
3.5. Conclusion.................................................................................................................................. 73
Appendix 3.A .................................................................................................................................... 74 B................. 75
iii4 Illegal Trade in the Iranian Economy: Evidence from a Structural Model ..................77
4.1. Introduction .............................................................................................................. 77
4.2. Stylized facts on Iran.................................................................................................................. 81
4.2.1. Rules and regulations for smuggling in Iran....................................................................... 81
4.2.2. The main contributing factors to smuggling in Iran ........................................................... 83
4.3. Empirical methodology.............................................................................................................. 86
4.4. Model variables.......................................................................................................................... 88
4.4.1 Causes (predictors) ............................................................................................................. 88
4.4.2 Indicators ............................................................................................................................. 93
4.5. Estimation and Results............................................................................................................... 95
4.6. Conclusions.............................................................................................................................. 106
Appendix 4.A .................................................................................................................................. 109 B............... 112
Appendix 4.C: Estimating smuggling by trade discrepancy methodology ..................................... 114
Appendix 4.D: Analysis of normality ............................................................................................. 116
5 Macroeconomic Populism in Iran....................................................................................117
5.1. Introduction .............................................................................................................................. 117
5.2. Defining macroeconomic populism ......................................................................................... 118
5.2.1. Properties of populist leaders and populist policies ......................................................... 119
5.2.2. Phasing the Populist Macroeconomy................................................................................ 120
5.3. From Khatami to Ahmadinejad................................................................................................ 122
5.3.1. Initial Conditions (1997-2004).......................................................................................... 122
5.3.2. Phase 1: Reactivation and Redistribution Policies........................................................... 126
5.3.3. Phases 2 and 3: Has the Ahmadinejad state surpassed the Second Phase? ..................... 131
5.4. Conclusion