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Oil price reduction impacts on the Iranian economy

Author

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  • Abdollah Mahmoodi

    (Mahabad Branch, Islamic Azad University, Collage of Humanities, Pazhuhesh sq, Mahabad, Western Azerbaijan, Iran.)

Abstract

The aim of this study is to assess the impacts of oil price reduction on Iran’s economy. In order to simulate this shock, the global trade analysis project (GTAP) model with its data done by using. In the new created data aggregation, oil exporting in Iran and the rest of the world countries as economic new regions, ten new economic sectors have been created, among which the oil is introduced as one sector as well as five endowments. The standard economic closure was changed, and decline in world oil price was simulated in model as a policy shock. The results show that oil export revenue and the mineral commodity export earnings will decrease, but other production sectors’ exports will increase. The trade balance of Iran will be affected negatively and strongly. Also, oil and other services production decreased. In the production sectors’ market, the demand for labor, natural resources, and investment decreased dramatically, and the demand for land increased. Using equivalent variation (EV), changes in Iran’s welfare is high negative. Finally, deflation, reduction in value and quantity of GDP and changes in consumption combination from public to private sector are the other economic impacts of reduction in oil price on Iran’s economic. It is suggested that future studies are done using dynamic models and up-to-date data. In addition, policy makers need to rebound internationally and within OPEC to raise oil prices.

Suggested Citation

  • Abdollah Mahmoodi, 2017. "Oil price reduction impacts on the Iranian economy," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 35(2), pages 353-374.
    • Handle: RePEc:rfe:zbefri:v:35:y:2017:i:2:p:353-374
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    References listed on IDEAS

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    More about this item

    Keywords

    oil price; Iran’s economy; consumption combination; welfare; labor market;
    All these keywords.

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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