Investigating the scenarios for the optimal allocation of oil revenues in Iran with the assumption of the existence of a Dutch disease: The dynamic computable general equilibrium (DCGE) approach

Document Type : Research Paper

Authors

1 Ph.D student of Economics, Ferdowsi University of Mashhad

2 Associate Professor of Economics, Ferdowsi University of Mashhad

Abstract

The use of revenues from natural resources, including oil, has always been of interest to politicians, economics professionals as well as various social groups. With the assumption of the Dutch disease in Iran’s economy, this study seeks to explore the management and optimal allocation of oil revenues. Various scenarios on the allocation of oil revenues have been reviewed by the National Development Fund. In the first scenario, it is assumed that all the oil revenues are consumed in every corresponding year. In the second scenario, all oil revenues come into the National Development Fund every year. In the third scenario, oil revenues are allocated for 5 percent of the GDP. Finally, in the fourth scenario, 10 percent of the oil revenues enter the National Development Fund each year and the rest is spent on government costs. According to the results of the first scenario, i.e. increased economic growth, Dutch disease is increasing and households are the most affluent in the community. In the second scenario, there are very limited growth effects. The third scenario leads to worse trading conditions in the short term. In the fourth scenario, although gross domestic product is less than that in the first scenario, it seems to be the best mode for growth and flexibility in the long run. This is because, with the National Development Fund, the country has an incentive to use oil revenues even at low oil prices.

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References

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The Journal of Economic Policy
Volume 11, Issue 22
March 2020
Pages 335-364

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