Iranian economy Essay Example | Topics and Well Written Essays - 2250 words

Iranian economy - Essay Example The performance of the Iranian economy in the early twenty-first century has witnessed a marked deterioration, in absolute terms as well as relative to other countries in the region. The growth of the economy has slackened drastically (Ramin, 2004). The economy, with a rapidly expanding population, has experienced a marked decline in investment, low labor productivity, a widening trade gap, a fast accumulation of debt and, above all, a sharp decline in the standard of living. What are the determinants of economic performance? There is broad agreement among economists that macroeconomics stability – characterized by moderate and predictable inflation, a small budget deficit, and the relative stability of the real exchange rate – is essential for long-term economic growth (Sciolino, 2005). Several empirical studies suggests that stable prices, a sensible exchange rate that does not discourage exports and good fiscal and monetary disciplines are necessary, though not suffi cient, conditions for a sustainable improvement in living standards. Viewed from this perspective the deterioration of in the performance of the Iranian economy since 1980 can be largely explained by the macroeconomic stability that has characterized this post revolutionary period (Sciolino, 2005).The theme of this proposal is centered on the role of the state in the process of economic and social development in the post revolutionary period. The emphasis, however, is on economic performance.... there is general consensus amongst close observers of the Iranian economy about the 'decisive' historical role of the state. Furthermore, a distinctive feature of the current Iranian state is that sizeable oil revenue accrues to the government because of its monopoly right over oil. The rentier nature of the state provides it with economic power and financial independence, although the state plays a central role in distributing this wealth to the population through direct subsidies and the creation of economic activities. 2. Iran's Economy in a Comparative Context There has been a remarkable deterioration in the growth performance of the Iranian economy since the late 1980s, both relative to its past performance and compared to international standards. This is reflected in the below table, which shows comparative per capita GDP trends for Iran and United States. Though the comparison does show a major difference, it is to be noted that here we have compared a lower middle income economy to a higher economy. Table: Comparative Figures of Iran and US Economy for the years 2003 - 2005 Source: World Bank Data Banks. 3. Economic Policy and Industrial Structure The rapid growth of the Iranian economy during the two decades preceding the 1979 Revolution took place in the context of an import substitution industrialization strategy. The paradoxical result of this strategy was to make the economy increasingly dependent on oil export revenues in order to finance the intermediate and capital goods imports needed by Iran's heavily protected industrial sector (Halliday, 1979). In the immediate aftermath of the revolution a considerable portion of large-scale modern industry, and the entire banking and insurance