OIL EXPORTS, STRUCTURAL CHANGE, AND ECONOMIC DEVELOPMENT IN IRAN

Within the broad Chenery-Kuznets framework, using structural change as a major indicator of economic development, this study investigates the direction and magnitude and broad features of structural change in Iran, and the role of oil production and exports in that change. Although the study covers a larger horizon, the analysis is focused on the period 1955-77. A similar but less detailed investigation is conducted for Algeria, Indonesia, and Venezuela also, and a cross-country, comparative perspective is generated. The study shows that, in general, the structural changes in Iran have either been weak (for example, in production and employment), or they are contrary to what the model would predict (for instance in trade). Even where the structural change is strong, and seemingly consistent with the model (e.g., in demand and in resource accumulation), the economic characteristics associated with the changes indicate lack of any real development which, in the underlying conceptual framework, leads to the predicted structural change; the declining share of demand for agricultural products seems to indicate an impoverishment of domestic agriculture and a move toward imported manufactures, and not a growing industrial sector; the shift of demand from private to the government sector seems to reflect mainly heavy defense spending and somewhat unproductive public sector outlay; the resource accumulation appears to be concentrated on non-core sectors like construction. The pattern of structural change observed in Iran, therefore, does not indicate any significant economic development evey though per capita income increased five-fold over the period 1955-77. In short, oil does not appear to have been an engine of economic development in Iran. The situation appears broadly similar for the other three countries. Based on these findings, the study offers some suggestions concerning the future economic strategies that should enhance very considerably the contribution that oil industry can make toward Iran's economic development, and should thus accelerate the pace of economic development. These suggestions may be useful to other oil exporting countries as well.