Asymmetric Effect of Oil Rent on Public Debt in Iran

Document Type : Original Article

Author

Ph.D. of Public Sector Economics, School of Economics and Administrative Sciences, Lorestan University, Khoram Abad, Iran.

Abstract

Considering the significant increase in the public debt burden in Iran over the past years and considering the dependence of the government's budget on revenues from oil sales, this study investigated the short-term and long-term asymmetric effects of oil rent on public debt in Iran during the years 1996-2021. For this purpose, the augmented bounds cointegration test and Non-linear Autoregressive Distributed Lag (NARDL) estimator have been used. The results show that the short-term and long-term effect of the increase in the share of oil rent from GDP on the share of public debt from GDP )public debt burden index) is negative and significant and this effect is positive and significant for the decrease impulses; In such a way that the size of effects of increasing impulses is smaller than the effects of decreasing impulses (confirmation of asymmetric effects). The results of the asymmetric Granger causality test also show the existence of a causal relationship from the increasing impulses of the public debt burden to the increasing impulses of the share of oil rent from GDP, which confirms that high levels of public debt in the country lead to the faster extraction and sale of oil resources. According to other results, economic growth has a negative and significant effect, the share of consumption expenditure in GDP has a positive and significant effect, and inflation has an insignificant effect on the public debt burden in Iran. Based on this, regulating and limiting the level of public borrowing during periods of booming oil revenues, transferring natural resource revenues through the financial system to the real sector, and adopting anti-corruption policies to prevent the deviation and waste of oil revenues in order to have a greater effect of oil rent on public debts and on the other hand, the control of public debts and the correct management of the ratio of debt to GDP in order to reduce the speed of extraction and sale of oil resources are the most important policy recommendations of this research.

Keywords

References

Achua, S.K., Yusuf, M. & Wakdok, S.S. (2022). Nonlinear public debt and resource rent nexus in highly indebted resource-rich sub-Saharan economies: Evidence from Nigeria, Resources Policy, 79. doi.org/10.1016/j.resourpol.2022.102983
Alesina, A., Roubini, N. & Cohen, G.D, (1997). Political cycles and the macro economy. Cambridge: The MIT Press.
Ampofo, G.M.K., Jinhua, C., Bosah, P.C., Ayimadu, E.T. & Senadzo, P. (2021). Nexus between total natural resource rents and public debt in resource-rich countries: A panel data analysis, Resources Policy, 74. doi.org/10.1016/j.resourpol.2021.102276
Appiah-Kubi, S.N.K., Malec, K. & Phirt, J. (2022). Key drivers of public debt Levels: Empirical evidence from Africa. Sustainability, 14(3), 1220. https://doi.org/10.3390/su14031220
Arman, A., Salahmanesh, A. & Shalyari, F. (2020). Investigating the threshold effect of public debt on economic growth ‎using threshold regression model: Evidence from selected countries. Planning and Budgeting, 25(1), 29-51. doi:10.29252/jpbud.25.1.29 (In Persian)
Atiqasani, G., Nairobi, N. & Darmawan, A. (2022). Determinants of public debt ratio in Middle-Income countries, Jurnal Ekonomi dan Pembangunan, 12(2), 168-182. doi. https://doi.org/10.12928/optimum.v12i2.6352
Bougharriou, N., Benayed, W. & Gabsi, F.B. (2018). How does democracy affect public debt? Evidence from the Arab world. Economics Discussion Papers, No. 2018-54, Kiel Institute for the World Economy (IfW Kiel). doi:10.7910/DVN/68MATY
Calitz, E., Steenekamp, T.J. & Siebrits, F.K. (2019). Public Economics. Cape Town, Oxford University Press Southern Africa (Pty) Limited.
Ezzati, M., Seif, A., Mehregan, N. & Maleki Shahrivar, M. (2016). The short- and long-run effects of oil revenues on economic corruption in Iran. The Economic Research, 16(2):73-98. URL: http://ecor.modares.ac.ir/article-18-12147-fa.html (In Persian)
Forslund, K., Lima, L. & Ugo, P. (2011). The determinants of the composition of public debt in developing and emerging market countries. Review of Development Finance, 1(3–4), 207–222. https://doi.org/10.1016/j.rdf.2011.09.004
Fukunaga, I., Komatsuzaki, T. & Matsuoka H. (2020). Inflation and public debt reversals in advanced economies. The World Bank. https://doi.org/10.1111/coep.12537
Golkhandan A. (2017). Impact of positive and negative oil shocks on the stock price index in Iran (Is this impact asymmetric?). Quarterly Journal of Fiscal and Economic Policies, 4(15), 89-114. URL: http://qjfep.ir/article-1-389-fa.html (In Persian)
Golkhandan, A., & Mohammadian Mansoor, S. (2020). The cross-effect of fiscal decentralization and corruption on budget deficit in Iran: A Canonical Co-Integration Regression (CCR) approach. Journal of Iranian Economic Issues, 7(1), 277-295. doi: 10.30465/ce.2020.5956 (In Persian)
Granger, C.W. & Yoon, G. (2002). Hidden co-integration, University of California, Working Paper. doi:10.2139/ssrn.313831
Guscina, A. (2008). Impact of macroeconomic, political, and institutional factors on the structure of government debt in emerging market countries. IMF Working Papers 08/205, International Monetary Fund. doi:10.5089/9781451870633.001
Hatemi-J, A. (2003). A new method to choose optimal lag order in stable and unstable VAR models. Applied Economic Letters, 10, 135-137. https://doi.org/10.1080/1350485022000041050
Hatemi-J, A. (2012). Asymmetric causality tests with an application. Empirical Economics, 43, 447-456. doi: 10.1007/s00181-011-0484-x
Hatemi-J, A. & Uddin, G.S. (2012). Is the casual nexus of energy utilization and economic growth asymmetric in the US? Economic Systems, 36, 461-469. https://doi.org/10.1016/j.ecosys.2011.10.005
Hlongwane, N.W. & Daw, O.D. (2022). Determinants of public debt in South Africa: A Regime-Switching Approach. International Journal of Economics and Finance Studies, 14(1). Online at https://mpra.ub.uni-muenchen.de/113203/
Jafari, M., Golkhandan, A., Mohammadian Mansoor, S., & Miry, A. (2016). The threshold effects of the external debt on the economic growth in eight developing countries: Panel Smooth Transition Regression (PSTR) model. Journal of Economics and Regional Development, 23(11), 89-120. doi: 10.22067/erd.v23i11.51119 (In Persian)
Karadam, D.Y. (2018). An investigation of nonlinear effects of debt on the growth. The Journal of Economic Asymmetries, 18(1). https://doi.org/10.1016/j.jeca.2018.e00097
Kaufmann, D. (2010). Can corruption adversely affect public finances in industrialized countries? Working paper.
Kamijani, A. & Varahrami, V. (2012). Assessing the role of various factors causing budget deficit in Iran. Strategy, 21(3), 27-42. doi: 20.1001.1.10283102.1391.21.3.1.7 (In Persian)
Law, S.H., Ng, C.H., Kutan, A.M. & Law, Z.K. (2021). Public debt and economic growth in developing countries: Nonlinearity and threshold analysis. Economic Modelling, 98, 26-40. https://doi.org/10.1016/j.econmod.2021.02.004
Lederman, D. & Maloney, W.F. (2006). Natural resources, neither curse Nor Destiny. The World Bank. http://dx.doi.org/10.1596/978-0-8213-6545-8
Manzano, O. & Rigobon, R. (2001). Resource curse or debt overhang? National bureau of economic research.
Melina, G., Yang, S.S. & Zanna, L. (2016). Debt sustainability, public investment, and natural resources in developing countries: the DIGNAR model. Economic Modelling, 52, 630-649. https://doi.org/10.1016/j.econmod.2015.10.007
Mihalyi, D. & Scurfield, T. (2020). How Africa’s prospective petroleum producers fell victim to the resource curse? The Extractive Industries and Society, 8, 220-232. https://doi.org/10.1016/j.exis.2020.11.003
Mohamadian Mansoor, S. & Golkhandan, A. (2015). The influence of military spending on external debt in IRAN. Financial Economics, 9(32), 139-168. doi: 20.1001.1.25383833.1394.9.32.8.3 (In Persian)
Montazeri, J. (2019). The determinants of government debt size in Iran's economy: New evidence from an ARDL Approach. Journal of Iranian Economic Issues, 5(2), 105-124. (In Persian)
Mowlaei, M. & Abdian, M. (2018). Determinants of government’s budget deficit in Iran: 1989-2015. Planning and Budgeting, 23(1), 59-78. URL: http://jpbud.ir/article-1-1681-fa.html (In Persian)
Narayan, P. (2005). The saving and investment nexus for China: Evidence from co-integration Tests. Applied Economics, 37(17), 1979-1990. doi:10.1080/00036840500278103
Narayan, P. K. & Narayan, S. (2005). Estimating income and price elasticities of imports for Fiji in a co-integration framework, Economic Modelling, 22(3), 423-438.  https://doi.org/10.1016/j.econmod.2004.06.004
Okwoche, P. &Nikolaido, E. (2022). Determinants of external, domestic, and total public debt in Nigeria: The role of conflict, arms imports, and military expenditure. Defence and Peace Economics. https://doi.org/10.1080/10242694.2022.2145709
Pesaran, M.H., Shin, Y. & Smith, R.J. (2001). Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16(20), 289-326. doi:10.1002/jae.616
Rogoff, K. (1990). Political budget cycles. American Economic Review, Vol. 80. https://www.jstor.org/stable/2006731
Sachs, J.D. & Warner, A.M. (1997). Sources of slow growth in African economies. J. Afr. Econ, 6(3), 335-376. https://doi.org/10.1093/oxfordjournals.jae.a020932
Sadeghi, S.K. & Tadayon, S. (2022). Investigating the effect of public debt on economic growth in selected Islamic countries. Islamic Economics and Banking, 10(37), 45-68. URL: http://mieaoi.ir/article-1-1098-fa.html (In Persian)
Sadeghi Amroabadi, B. & Hooshmandi, H. (2021). Analyzing the effects of income inequality on public debt in OPEC member states by threshold panel. Journal of Economic Research and Policies; 29(97): 313-335. URL: http://qjerp.ir/article-1-2746-fa.html (In Persian)
Sadik-Zada, E.R. (2016). Oil abundance and economic growth (Vol. 70). Logos Verlag Berlin GmbH.
Sadik-Zada, E.R. & Gatto, A. (2019). Determinants of the public debt and the role of the natural resources: A cross-country analysis, FEEM Working Paper No. 4.2019.
Sam, C., McNown, R. & Goh, S. (2019). An augmented autoregressive distributed lag bounds test for co-integration. Economic Modelling, 80, 130-141. doi:10.1016/j.econmod.2018.11.001.
Sargent, T.J. & Hall, G. J. (2010). Interest rate risk and other determinants of post WWII US government debt/GDP dynamics. Meeting Papers. doi. org/10.3386/w15702.
Shin, Y., Yu, B. & Greenwood-Nimmo, M. (2014). Modeling asymmetric co-integration and dynamic multipliers in a nonlinear ARDL Framework, In W. Horrace, & R. Sickles (Eds.), The Festschrift in Honor of Peter Schmidt.: Econometric Methods and Applications (pp. 281-314). Springer. https://doi.org/10.1007/978-1-4899-8008-3__9.
Sovacool, B.K. (2016). Countering a corrupt oil boom: energy justice, natural resource funds, and São Tomé e Príncipe's Oil Revenue Management Law. Environmental Science & Policy, 55, 196-207. https://doi.org/10.1016/j.envsci.2015.09.015
Veiga, J.L., Ferreira-Lopes, A. & Sequeira, T.N. (2019). Public debt, economic growth, and inflation in African economies. South African Journal of Economics, 84(2), 294-322. https://doi.org/10.1111/saje.12104
Wahed, A. (2017). Determinants of external debt: A panel data analysis for oil and gas exporting and importing countries. International Journal of Economics and Financial Issues, 7(1), 234-240. Available at http: www.econjournals.com
Wang, W., Ning, Z., Shu, Y., Riti, J.S. & Riti, M.K. (2023). Natural resource rents and public debts nexus in African resource-rich and most indebted nations: Issues with aggregation bias. Resources Policy, 82. https://doi.org/10.1016/j.resourpol.2023.103409
Wang, H., Zhang, P., Li, Z., Liu, S. & Zhou, S. (2021). Association between natural resources and government debt: a cross-country study, Available at SSRN: https://ssrn.com/abstract=3985367 or http://dx.doi.org/10.2139/ssrn.3985367
Public Sector Economics Studies
Volume 2, Issue 3 - Serial Number 5
December 2023
Pages 269-292

Files

History

  • Receive Date: 22 October 2023
  • Revise Date: 04 December 2023
  • Accept Date: 05 December 2023

Share

How to cite

Statistics