Asymmetric Effects of Oil Rent Shocks on Iran’s Economic Growth: Evidence from a NARDL Approach

Bozorgimanesh, Mahboobeh; Mosavi, Seyed Nematollah; Moradi, Mehrdad

doi:10.48308/jep.2025.238339.1206

Asymmetric Effects of Oil Rent Shocks on Iran’s Economic Growth: Evidence from a NARDL Approach

Document Type : Original Article

Authors

¹ PhD student, Department of Oil and Gas Economics, Marvdasht Branch, Islamic Azad University, Marvdasht, Iran.

² Professor, Department of Agricultural Economics, Marvdasht Branch, Islamic Azad University, Marvdasht, Iran.

³ Assistant Professor, Department of Agricultural Economics, Yasuj Branch, Islamic Azad University, Yasuj, Iran.

10.48308/jep.2025.238339.1206

Abstract

This research explores how positive and negative fluctuations in oil rent impact Iran’s economic performance asymmetrically over the period from 1990 to 2023, employing a Nonlinear Autoregressive Distributed Lag (NARDL) approach for analysis. Employing annual data on GDP per capita, capital stock, industrial employment, population growth, trade openness, and health expenditure, the analysis captures both long-run and short-run dynamics in this resource-dependent economy. The findings indicate a substantial long-term association between economic growth and its key drivers, where capital formation, employment in the industrial sector, and expenditures on healthcare demonstrate notable positive impacts on GDP per capita. Importantly, both increases and decreases in oil rent are found to have statistically significant and similarly sized positive long-term effects on per capita GDP, with estimated coefficients of 0.478 and 0.445 respectively. This highlights Iran's deep dependence on oil income and the dominance of a single sector within its economy. Contrastingly, in the short run, oil rent shocks of both signs exhibit negative impacts, reflecting structural inefficiencies and resource misallocations consistent with the Dutch disease phenomenon. Furthermore, the analysis shows that trade liberalization has a detrimental impact on GDP per capita in both the short and long run, with coefficients of -0.86 and -1.28 respectively, and this negative effect becomes stronger over time. The error correction term is negative and statistically significant, suggesting that the economy adjusts relatively quickly to restore long-term equilibrium after short-term disturbances. These results support the resource curse theory, implying that reliance on oil revenues undermines sustainable economic growth by distorting key sectors and economic incentives. The study recommends policy measures aimed at reducing oil dependency through institutional reforms, strengthening fiscal shock absorbers such as the National Development Fund, diversifying the tax base, and prioritizing public investments in productive sectors like agriculture and manufacturing. Implementing these strategies is essential for fostering a resilient and diversified economy capable of withstanding global oil price volatility.

Keywords

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