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Dr Abolghasem Golkhandan,
Volume 0, Issue 0 (12-2024)
Volume 0, Issue 0 (12-2024)
Abstract
Aim and Introduction
Ecological footprint accounting is composed of two metrics, the “demand-side” (ecological footprint) and the “supply-side” (biocapacity). While the ecological footprint calculates the demand for natural assets in global hectares, biocapacity symbolizes the supply capacity of nature to meet this demand with the same unit of measurement. Ecological deficit also shows the difference between ecological footprint and biological capacity. Globally, the degree of ecological deficits continued to expand over the last decade due to the increase in EF and reduction in biocapacity, which is caused by the following: increasing consumption of fossil fuel energy, overexploitation of natural resources, unsustainable production methods, and economic activities.
Iran is one of the countries that has a weak environmental performance. According to the Global Footprint Network, Iran's ecological footprint exceeded 333% of its biological capacity in 2022. Iran's ecological deficit, which was - 0.55 global per capita hectares in 1961, has increased by 554% to 2.50 global per capita hectares in 2022, and the destruction and pollution of the environment in Iran have reached unsustainable levels. Therefore, the analysis of the determinants of environmental quality can provide insights into the design of appropriate environmental policies in Iran.
In this regard, the environmental effects of dependence on crude oil have attracted considerable attention. Crude oil is an important and largest source of energy, especially for developing countries such as Iran. It is a fossil-based fuel and a major source of carbon emissions in the world. Hence, many studies have linked oil price shocks to environment quality. In contrast to oil-importing economies, where oil price increases encourage a shift to cheaper and cleaner alternative energy sources, the environmental policy issue in oil-exporting countries is entirely different. Indeed, a fall in oil prices may be associated with a decreased investment in environmentally friendly energy sources. By comparison, an increase in oil prices revealed a reluctance to diversify the economy away from its reliance on non-eco-friendly fossil fuel energy.
Based on the explanations above, the main purpose of this article is to investigate the asymmetric impact of scaled oil price impulses on the environmental Load Capacity Factor (LCF) in Iran using the Non-linear Autoregressive Distributed Lag (MATNARDL) approach. The paper intends to make the following contributions to the literature. Firstly, this article is the first to look into the effect of oil prices on the LCF in Iran by applying asymmetric methodologies. Secondly, it is the first study with a reverse load capacity factor as an environmental sustainability indicator. Thirdly, this paper applied the advanced and newly developed MATNARDL for asymmetric and nonlinear analysis to provide a more robust result that exhibits relevant policy implications. Finally, this innovative study investigated the effects of oil prices on the LCF in Iran between 1961 and 2022 in the framework of the LCC hypothesis.
Methodology
The study compiles annual data for the period 1961-2022 for Iran from three different sources. According to Statista, OP represents average annual OPEC crude oil price (in US dollars per barrel). The data are obtained from the World Bank, GDP per capita, (constant 2015 dollars), Energy Consumption (EC) as kg of oil equivalent per capita, Ecological Footprint (per capita, gha) and LCF (the load capacity factor) are obtained from Global Footprint Network. Because the LCF includes biocapacity in the numerator and EF in the denominator, it allows for simultaneous environmental assessment on the supply and demand sides. A higher LCF indicates a better environment. The current paper's economic functions are illustrated in Equations (1):
2
The main objective of this study is to examine the major, medium and minimal scales of positive and negative changes in oil price on the environmental quality index in Iran. For this purpose, the MATNARDL is used as an estimator to examine the effect of minor to major adverse shocks and minor to major positive surprises in the explanatory variable on the explained variable.
Findings
The bounds cointegration test results confirm a long-term relationship in the asymmetric model. The estimation of the model has been performed by categorizing the positive and negative impulses of the oil price in three small (quantiles less than the τ30 threshold), medium (quantiles between the τ30 and τ70 thresholds), and large (quantiles greater than the τ70 threshold) scales in the form of MATNARDL approach. The results indicate that in the long term, small scale of positive (negative) oil price impulses had a positive (negative) and significant effect on the load capacity factor; while these impulses have a negative effect on the load capacity factor in the long term in both medium and large scales. Based on other results, energy consumption has a negative and significant effect on the load capacity coefficient, and the environmental hypothesis of the load capacity curve (LLC) in Iran is confirmed.
Discussion and Conclusion
Based on the obtained results, it can be said that the effect of oil price on the load capacity factor in Iran is asymmetric. Among positive impulses, only with increase in small scale of oil price, we can see an increase in load capacity factor and environmental sustainability in the country. Moreover, the positive impulses of the oil price on both medium and large scales lead to the increase of environmental instability by prioritizing economic achievements and activities over environmental issues
Ecological footprint accounting is composed of two metrics, the “demand-side” (ecological footprint) and the “supply-side” (biocapacity). While the ecological footprint calculates the demand for natural assets in global hectares, biocapacity symbolizes the supply capacity of nature to meet this demand with the same unit of measurement. Ecological deficit also shows the difference between ecological footprint and biological capacity. Globally, the degree of ecological deficits continued to expand over the last decade due to the increase in EF and reduction in biocapacity, which is caused by the following: increasing consumption of fossil fuel energy, overexploitation of natural resources, unsustainable production methods, and economic activities.
Iran is one of the countries that has a weak environmental performance. According to the Global Footprint Network, Iran's ecological footprint exceeded 333% of its biological capacity in 2022. Iran's ecological deficit, which was - 0.55 global per capita hectares in 1961, has increased by 554% to 2.50 global per capita hectares in 2022, and the destruction and pollution of the environment in Iran have reached unsustainable levels. Therefore, the analysis of the determinants of environmental quality can provide insights into the design of appropriate environmental policies in Iran.
In this regard, the environmental effects of dependence on crude oil have attracted considerable attention. Crude oil is an important and largest source of energy, especially for developing countries such as Iran. It is a fossil-based fuel and a major source of carbon emissions in the world. Hence, many studies have linked oil price shocks to environment quality. In contrast to oil-importing economies, where oil price increases encourage a shift to cheaper and cleaner alternative energy sources, the environmental policy issue in oil-exporting countries is entirely different. Indeed, a fall in oil prices may be associated with a decreased investment in environmentally friendly energy sources. By comparison, an increase in oil prices revealed a reluctance to diversify the economy away from its reliance on non-eco-friendly fossil fuel energy.
Based on the explanations above, the main purpose of this article is to investigate the asymmetric impact of scaled oil price impulses on the environmental Load Capacity Factor (LCF) in Iran using the Non-linear Autoregressive Distributed Lag (MATNARDL) approach. The paper intends to make the following contributions to the literature. Firstly, this article is the first to look into the effect of oil prices on the LCF in Iran by applying asymmetric methodologies. Secondly, it is the first study with a reverse load capacity factor as an environmental sustainability indicator. Thirdly, this paper applied the advanced and newly developed MATNARDL for asymmetric and nonlinear analysis to provide a more robust result that exhibits relevant policy implications. Finally, this innovative study investigated the effects of oil prices on the LCF in Iran between 1961 and 2022 in the framework of the LCC hypothesis.
Methodology
The study compiles annual data for the period 1961-2022 for Iran from three different sources. According to Statista, OP represents average annual OPEC crude oil price (in US dollars per barrel). The data are obtained from the World Bank, GDP per capita, (constant 2015 dollars), Energy Consumption (EC) as kg of oil equivalent per capita, Ecological Footprint (per capita, gha) and LCF (the load capacity factor) are obtained from Global Footprint Network. Because the LCF includes biocapacity in the numerator and EF in the denominator, it allows for simultaneous environmental assessment on the supply and demand sides. A higher LCF indicates a better environment. The current paper's economic functions are illustrated in Equations (1):
The main objective of this study is to examine the major, medium and minimal scales of positive and negative changes in oil price on the environmental quality index in Iran. For this purpose, the MATNARDL is used as an estimator to examine the effect of minor to major adverse shocks and minor to major positive surprises in the explanatory variable on the explained variable.
Findings
The bounds cointegration test results confirm a long-term relationship in the asymmetric model. The estimation of the model has been performed by categorizing the positive and negative impulses of the oil price in three small (quantiles less than the τ30 threshold), medium (quantiles between the τ30 and τ70 thresholds), and large (quantiles greater than the τ70 threshold) scales in the form of MATNARDL approach. The results indicate that in the long term, small scale of positive (negative) oil price impulses had a positive (negative) and significant effect on the load capacity factor; while these impulses have a negative effect on the load capacity factor in the long term in both medium and large scales. Based on other results, energy consumption has a negative and significant effect on the load capacity coefficient, and the environmental hypothesis of the load capacity curve (LLC) in Iran is confirmed.
Discussion and Conclusion
Based on the obtained results, it can be said that the effect of oil price on the load capacity factor in Iran is asymmetric. Among positive impulses, only with increase in small scale of oil price, we can see an increase in load capacity factor and environmental sustainability in the country. Moreover, the positive impulses of the oil price on both medium and large scales lead to the increase of environmental instability by prioritizing economic achievements and activities over environmental issues
Dr Kiumars Shahbazi, Mrs. Khadijeh Hasanzadeh, Mr. Vahid Khoshkhabar,
Volume 20, Issue 1 (3-2020)
Volume 20, Issue 1 (3-2020)
Abstract
This paper uses the non-linear auto-regressive distributed lags (NARDL) model to examine the short- and long -run effects of the negative and positive shocks of the shadow economy on financial development in Iran over the period 1974 - 2015. For this purpose, the ratio of liquidity to gross domestic product is used as an indicator of financial development. The shadow economy includes all market-based production activities that are deliberately hidden from government officials due to the escape or avoidance of payments, such as taxes and social security contributions. In this study, the MIMIC (multiple indicators and multiple causes) calculations by Piraee and Rajaee (2015) are used for estimating the shadow economy. The results show that the effects of positive and negative shocks of shadow economy on financial development are asymmetric in the short- and long-run. This asymmetry means that in the short- and long-run, the negative shock to shadow economy is more effective than its positive shock. Therefore, in order to maintain the current level of financial development, the government can monitor size of shadow economy through strict control of illegal activities in the short-run, identify the illegal activities, and reduce them in the long run.
Dr. Ameneh Nadalizadeh, Professor Kambiz Kiani, Dr. Shamseddin Hoseini, Dr. Kambiz Peykarjou,
Volume 21, Issue 1 (3-2021)
Volume 21, Issue 1 (3-2021)
Abstract
Oil price shocks have an undesirable effect on financial stability and banking systems, in addition to creating uncertainty and negative effects on the macroeconomic performance of oil-exporting countries. In fact, the dependency of government spending policies on oil price movements in oil exporting countries creates feedback loops between asset prices and bank credits that could lead to an increase in vulnerability of the financial sector. Therefore, considering the importance of the issue, this study aims to investigate the asymmetric effects of oil prices on non-performing loans (NPLs), as credit risk criteria, by applying data from 18 selected banks in Iran during 2006-2017. In this regard, the relationship between variables has been estimated using Panel Nonlinear Autoregressive Distributed Lag (PANEL NARDL). The predictability of symmetric and asymmetric PANEL ARDL models is assessed by applying RMSE and Campbell and Thompson (2008) tests. The results show that the asymmetric model has better performance and efficiency than the symmetric model. These asymmetric effects are significant in both short-term and long-term. Based on the results, the impact of oil price on the NPLs of some banks is positive and in the others is negative and significant.
Mrs. Narges Sanjari Konarsandal, Dr Behnam Elyaspour, Dr Roohollah Babaki,
Volume 22, Issue 4 (12-2022)
Volume 22, Issue 4 (12-2022)
Abstract
Introduction:
Excessive carbon emissions and global warming caused by human activities have become serious challenges to the human society and have raised global concerns. Currently, air pollution has become so important in many big countries of the world and especially big cities of Iran. Air pollution has forced governments to adopt short-term and long-term policies and plans for solving it.
Policy uncertainty related to economic decision-making is of great importance in the global economy. Numerous researches have shown that the uncertainty of economic policies is closely related to various economic indicators. In addition to the economic effect, the uncertainty in economic policies has an environmental effect. Increasing economic policy uncertainty weakens the government's commitment to environmental governance and, as a result, affects the effectiveness of environmental policy implementation. Therefore, a reduction in economic policy uncertainty can reduce greenhouse gas emissions.
Regarding the effect of oil on the economic conditions of oil-exporting countries such as Iran, there are two points of view: in the first point of view, the positive effects of oil on improving people's quality of life are emphasized. The second point of view points to the negative effects of the development of energy resources on the environment in resource-rich countries. According to this point of view, extraction, production and consumption of oil resources causes waste of resources and destruction of the environment of the regions.
Considering that environmental pollution is one of the most challenging topics discussed in the world, the main goal of this study is to investigate the asymmetric effects of economic policy uncertainty and oil price on carbon emissions in Iran.
Methodology:
The model to investigate the asymmetric effects of economic policy uncertainty and oil price on carbon emissions is defined as follows:
where, CO2: carbon dioxide emissions, EPU: economic policy uncertainty, OP: oil price, GDP: gross domestic product and EC: energy consumption. In the process of estimating the model, the data related to economic policy uncertainty follow the study of Ashena and Shahpari (2022) from World Uncertainty Index (WUI), data on energy consumption are extracted from Ministry of Energy website and energy balance sheet, while other data are extracted from World Bank, International Monetary Fund and OPEC website during 1981-2018. In addition, the Nonlinear Autoregressive Distributed Lag (NARDL) model is used to estimate the above model.
Results and Discussion:
First, the stationarity of the variables was checked using the Phillips–Perron test. The results of the unit root test show that all the variables are I(1). In the following, the existence of long-term relationship between the variables was investigated using the Bounds test. The results indicated the existence of a long-term relationship between the variables in the model. After ensuring the validity of the model, Wald's test was used to test short-term and long-term asymmetry. The results indicated the asymmetric effect of economic policy uncertainty and the symmetric effect of oil price in the short and long term on carbon emissions. With the identification of the long-term relationship and the confirmation of asymmetry in the economic policy uncertainty variable, the study model was estimated using the NARDL model and diagnostic tests were carried out. The model estimation results showed the asymmetric effect of economic policy uncertainty on carbon emissions; So that the effect of positive changes in economic policy uncertainty variable in the short and long term on carbon emissions was positive and significant, while there was no significant relationship between the negative shock of economic policy uncertainty and carbon emissions in the short and long term. Also, the results show that the effect of oil price on carbon emissions was symmetric; So that the effect of oil price on carbon emissions in the short and long term was positive and significant. Finally, to ensure the stability of the model, CUSUM and CUSUMSQ tests were performed. The results indicated that the estimated model is stable.
Conclusion:
In Iran's economy, the government should spend the increased oil revenues resulting from the increase in oil prices to create infrastructures that will reduce air pollution, or in other words, invest the income from the increase in oil prices in technologies that they emit less carbon dioxide.
Governments in developing countries such as Iran, which are transitioning from agriculture to industry, should force industrial producers to use technologies that cause less pollution by enacting environmental laws and standards such as pollution taxes.
Iran is a rich country in renewable resources, and due to its geographical location (wind energy in the north and west of Iran, solar energy in the south of Iran), it can move towards the replacement of non-renewable resources with a systematic planning. Therefore, it is recommended to move towards the production and consumption of renewable resources, while preserving energy resources, in order to reduce the amount of carbon emissions.
Considering the positive effect of economic policy uncertainty on the emission of carbon dioxide in Iran, it is recommended to the government to give up its irregular economic policies in order to reduce the emission of pollution and to adopt its economic policies as a rule. Economic agents should act in a stable and predictable way to prevent economic policy uncertainty.
Dr Behnam Elyaspour, Dr Narges Sanjari Konarsandal,
Volume 23, Issue 2 (5-2023)
Volume 23, Issue 2 (5-2023)
Abstract
Introduction:
Tourism is a socio-economic phenomenon that begins with an economic decision about using leisure time and savings and has economic aspects such as investment, consumption, employment, export, and government income. Currently, tourism is one of the factors that providing income in the global economy and is becoming an essential factor for the investments and development of countries. The development of this industry is very important in developing countries, such as Iran, which are facing problems such as unemployment, lack of foreign exchange resources, and a single-product economy. Tourism is closely related to foreign direct investment, because tourism development has an urgent need for foreign direct investment in the tourism sector. Internationalization is a phenomenon that links tourism to foreign direct investment. Foreign direct investment helps in the financing, technology transfer, infrastructure development, job creation, and economic growth. Along with several benefits that foreign direct investment brings to the host country, it also plays a prominent role in developing the tourism industry. Also, the tourism industry, like many other industries, is disturbed by the fluctuations of the currency market. This disturbance in the tourism market is much more visible than in other industries, because the tourism industry is directly related to exchange rate changes. Considering that the development of the tourism industry is very important for developing countries like Iran, which are facing problems such as high unemployment rate, limited foreign exchange resources, and single product economy, the main purpose of this research is to investigate the asymmetric effect of foreign direct investment and exchange rate on Tourism in Iran.
Methodology:
The research model in this study to investigate the asymmetric effects of foreign direct investment on tourism is taken from the study of Munir and Iftikhar (2021) as follows, in addition, since the sanction is one of the influencing factors on Iran's economy in different periods and consequently on is the number of incoming tourists to Iran, so in this study, the sanction variable has been added to the study model as an important variable.
Tourism is a socio-economic phenomenon that begins with an economic decision about using leisure time and savings and has economic aspects such as investment, consumption, employment, export, and government income. Currently, tourism is one of the factors that providing income in the global economy and is becoming an essential factor for the investments and development of countries. The development of this industry is very important in developing countries, such as Iran, which are facing problems such as unemployment, lack of foreign exchange resources, and a single-product economy. Tourism is closely related to foreign direct investment, because tourism development has an urgent need for foreign direct investment in the tourism sector. Internationalization is a phenomenon that links tourism to foreign direct investment. Foreign direct investment helps in the financing, technology transfer, infrastructure development, job creation, and economic growth. Along with several benefits that foreign direct investment brings to the host country, it also plays a prominent role in developing the tourism industry. Also, the tourism industry, like many other industries, is disturbed by the fluctuations of the currency market. This disturbance in the tourism market is much more visible than in other industries, because the tourism industry is directly related to exchange rate changes. Considering that the development of the tourism industry is very important for developing countries like Iran, which are facing problems such as high unemployment rate, limited foreign exchange resources, and single product economy, the main purpose of this research is to investigate the asymmetric effect of foreign direct investment and exchange rate on Tourism in Iran.
Methodology:
The research model in this study to investigate the asymmetric effects of foreign direct investment on tourism is taken from the study of Munir and Iftikhar (2021) as follows, in addition, since the sanction is one of the influencing factors on Iran's economy in different periods and consequently on is the number of incoming tourists to Iran, so in this study, the sanction variable has been added to the study model as an important variable.
Where, TR (number of incoming tourists), FDI (foreign direct investment), ER (real exchange rate), INF (inflation rate), and SAN (sanction index). In the model estimation process, the data of this research was extracted from the sources of the World Bank and the International Monetary Fund on an annual basis during the period of 1981-2019, the data related to the sanctions index was taken from the study of Iranmanesh et al. (1400). In this study, the sanctions index was obtained through interviews with 15 experts in the economy of sanctions in the form of fuzzy questionnaires and fuzzy logic method. In addition, the Nonlinear Autoregressive Distributed Lag method (NARDL) is also used to estimate the above model.
Results and Discussion:
In this study, before performing the cointegration test, the degree of integration of the variables was determined by using two unit root tests of Augmented Dickey-Fuller and Zivot-Andrews. The results of the unit root test showed that in the Dickey-Fuller test, all model variables, except the inflation rate, are integrated into the first order. Also, in the Zivot-Andrews test, the variables of foreign direct investment and the inflation rate are integrated in zero order, and the rest are integrated in one order. After performing the unit root test, the bounds cointegration test was performed to check the existence of long-term relationships between the variables, the results of this test showed that there is a long-term relationship between the variables. After ensuring the existence of a long-term relationship between the variables, Wald's test was used to perform the short-term and long-term asymmetry tests. The results of this test showed that the effect of the foreign direct investment variable on the tourism variable is asymmetric in the short and long term. By identifying the existence of a long-term relationship and confirming the asymmetric effect of foreign direct investment on tourism in the short and long term, the final estimation of the NARDL model was carried out. The estimation results of the model show the asymmetric effect of foreign direct investment in the short and long term on tourism. So that in the short and long term, the effect of positive and negative changes in the foreign direct investment variable on tourism has been positive and significant. Also, the results showed that the effect of the exchange rate on tourism in the short and long term is positive and significant. Finally, to ensure the stability of the model, CUSUM and CUSUMSQ tests were performed. The results indicate that the estimated model is stable.
Conclusion:
According to the results of the model estimation:
1-Considering the positive impact of foreign direct investment on the number of incoming tourists to Iran, it is recommended that policymakers try to strengthen relations with other countries in the first step. Also, by adopting the right policies to strengthen the infrastructure, facilitate the issuance of permits and generally provide a suitable platform and a safe environment to encourage investors and foreign countries to invest in the country, provide the ground for the arrival of more tourists from all over the world.
2- Considering the positive effect of the exchange rate on the balance of payments of tourism, policymakers and, economic planners are suggested to increase the exchange rate by short shocks. But an increase in the exchange rate can cause domestic inflation, mistrust of domestic money and create rental income for profit-seeking people. Considering the negative effect of the inflation rate on the demand function of international tourism for travel to Iran, policymakers and economic planners should try to control the inflation rate in the country by adopting appropriate monetary and financial policies so that they can reduce its negative effect on the number of tourists.
3- The negative effect of sanctions on the number of tourists arriving in Iran indicates the fact that the application of diverse and extensive economic sanctions by the United States of America, the European Union and the United Nations Security Council against Iran has had a significant negative effect on attracting foreign tourists to Iran. It is recommended that in the first step, policymakers and officials take practical measures by conducting effective negotiations to reduce sanctions and at the same time, make decisions so that they can reduce the negative impact of sanctions in the field of attracting foreign tourists.
Results and Discussion:
In this study, before performing the cointegration test, the degree of integration of the variables was determined by using two unit root tests of Augmented Dickey-Fuller and Zivot-Andrews. The results of the unit root test showed that in the Dickey-Fuller test, all model variables, except the inflation rate, are integrated into the first order. Also, in the Zivot-Andrews test, the variables of foreign direct investment and the inflation rate are integrated in zero order, and the rest are integrated in one order. After performing the unit root test, the bounds cointegration test was performed to check the existence of long-term relationships between the variables, the results of this test showed that there is a long-term relationship between the variables. After ensuring the existence of a long-term relationship between the variables, Wald's test was used to perform the short-term and long-term asymmetry tests. The results of this test showed that the effect of the foreign direct investment variable on the tourism variable is asymmetric in the short and long term. By identifying the existence of a long-term relationship and confirming the asymmetric effect of foreign direct investment on tourism in the short and long term, the final estimation of the NARDL model was carried out. The estimation results of the model show the asymmetric effect of foreign direct investment in the short and long term on tourism. So that in the short and long term, the effect of positive and negative changes in the foreign direct investment variable on tourism has been positive and significant. Also, the results showed that the effect of the exchange rate on tourism in the short and long term is positive and significant. Finally, to ensure the stability of the model, CUSUM and CUSUMSQ tests were performed. The results indicate that the estimated model is stable.
Conclusion:
According to the results of the model estimation:
1-Considering the positive impact of foreign direct investment on the number of incoming tourists to Iran, it is recommended that policymakers try to strengthen relations with other countries in the first step. Also, by adopting the right policies to strengthen the infrastructure, facilitate the issuance of permits and generally provide a suitable platform and a safe environment to encourage investors and foreign countries to invest in the country, provide the ground for the arrival of more tourists from all over the world.
2- Considering the positive effect of the exchange rate on the balance of payments of tourism, policymakers and, economic planners are suggested to increase the exchange rate by short shocks. But an increase in the exchange rate can cause domestic inflation, mistrust of domestic money and create rental income for profit-seeking people. Considering the negative effect of the inflation rate on the demand function of international tourism for travel to Iran, policymakers and economic planners should try to control the inflation rate in the country by adopting appropriate monetary and financial policies so that they can reduce its negative effect on the number of tourists.
3- The negative effect of sanctions on the number of tourists arriving in Iran indicates the fact that the application of diverse and extensive economic sanctions by the United States of America, the European Union and the United Nations Security Council against Iran has had a significant negative effect on attracting foreign tourists to Iran. It is recommended that in the first step, policymakers and officials take practical measures by conducting effective negotiations to reduce sanctions and at the same time, make decisions so that they can reduce the negative impact of sanctions in the field of attracting foreign tourists.
Dr Seyedkamal Sadeghi, Dr Amirali Farhang, Mr Ali Mohammadpour, Mr Milad Hajibolnd,
Volume 24, Issue 2 (5-2024)
Volume 24, Issue 2 (5-2024)
Abstract
Introduction
The tourism industry is one of the main factors of economic growth and improvement of social welfare in many developed and developing countries, stimulation of foreign investment, foreign exchange income, development of infrastructure, creation of job opportunities, and social interaction among tourists. Tourism promotes globalization and international cooperation between countries and increases awareness of environmental protection. The performance of tourism depends on the level of development of the industry. Countries with developed tourism, experience a much greater economic growth compared to the countries with less developed tourism industry. Several factors affect the development of tourism industry. For example, tourism needs an advanced transportation network and other facilities to facilitate the movement of tourists from their own countries to the host countries and also within the host country. Therefore, the physical infrastructure is considered an important determining factor in the arrival of tourists. The current research examines the factors influencing the development of the tourism industry from other perspectives. The existing literature shows that tourism is vulnerable and prone to political risks related to poor governance strategies, crime, conflicts, political instability, corruption, and terrorism. High levels of political risk make countries inaccessible to international tourists, making visiting those countries seem highly risky and expensive at the same time. In addition to the mentioned items, other factors such as inflation rate, exchange rate fluctuations and real exchange rate affect the tourism industry. In case of currency devaluation in the host country, the visiting rate will increase as tourism products and services in the country become relatively cheap for tourists from countries with strong currencies. Another parameter in this regard is inflation category where there is a close correlation between the purchasing power of consumers, and rampant inflation rate. When the purchasing power of tourists decreases, they lose interest to travel to such destinations where life and travel expenditures are rather expensive and hardly affordable. However, when inflation decreases, more tourists visit the host country, where the cost of living and transportation is far cheaper.
The research findings have shown that tourism has played a vital role in many low-income countries like Iran. Over the recent years, the country has experienced severe fluctuations in the exchange rate and inflation rate. The accurate validation of exchange rate policies, inflation rate, and political risk is not only useful in the academic field but also for policymakers in practice to support the activity. The current research is innovative in terms of the subject and the econometric methods used. The research hypotheses are as follows: 1- There is a negative and significant relationship between political risk and tourism development. 2- There is a positive and significant relationship between the exchange rate and tourism development. 3- There is a negative and significant relationship between the inflation rate and tourism development.
Methodology
This research analyzes the effects of political risk, exchange rate, and inflation rate on the development of tourism in the case of Iran in the period of 2000-2021 and uses the non-linear econometric approach (NARDL) to estimate the short-term and long-term coefficients. To perform statistical and econometric analysis, Eviews 13 software was used. The QARDL method is also used to check the robustness of the results.
Findings
Short-term and long-term evaluations of NARDL model shows that the effect of a positive exchange rate shock on tourism development is positive and significant both in the short and long term, while the effect of a negative exchange rate shock on tourism development in both the short and long term is negative and significant. In the case of political risk and inflation rate, the results are the opposite of the exchange rate, so the impact of the positive shock of political risk and inflation rate on the development of tourism is negative and significant both in the short and long term, while the effect of the negative shock of political risk and inflation rate on it is positive and significant. The results of long-term and short-term estimates are consistent and differ only in the size of influence in terms of coefficients, and they confirm the hypothesis of the present study. The biggest impact in the short term, with a reduction factor of 0.611, is related to the inflation rate. In the long term, the greatest impact with a reduction factor of 0.790 units is related to the positive shock of political risk.
Discussion and Conclusion
The tourism economics literature has conclusively proved that tourism entering a country leads to economic development in the destination country. According to the reports of the World Tourism Organization (2018), tourism is the third largest industry in terms of global export earnings. Based on the results of this research, the following recommendations are suggested: Institutional reforms can help strengthen the economy of countries with low-quality institutions, and policymakers should consider the conditions of the tourism industry when setting country stabilization strategies. The increase in the inflation rate in recent years destroys the advantage of being cheap to travel to Iran due to the increase in the exchange rate, so policymakers should consider controlling the inflation rate.
The tourism industry is one of the main factors of economic growth and improvement of social welfare in many developed and developing countries, stimulation of foreign investment, foreign exchange income, development of infrastructure, creation of job opportunities, and social interaction among tourists. Tourism promotes globalization and international cooperation between countries and increases awareness of environmental protection. The performance of tourism depends on the level of development of the industry. Countries with developed tourism, experience a much greater economic growth compared to the countries with less developed tourism industry. Several factors affect the development of tourism industry. For example, tourism needs an advanced transportation network and other facilities to facilitate the movement of tourists from their own countries to the host countries and also within the host country. Therefore, the physical infrastructure is considered an important determining factor in the arrival of tourists. The current research examines the factors influencing the development of the tourism industry from other perspectives. The existing literature shows that tourism is vulnerable and prone to political risks related to poor governance strategies, crime, conflicts, political instability, corruption, and terrorism. High levels of political risk make countries inaccessible to international tourists, making visiting those countries seem highly risky and expensive at the same time. In addition to the mentioned items, other factors such as inflation rate, exchange rate fluctuations and real exchange rate affect the tourism industry. In case of currency devaluation in the host country, the visiting rate will increase as tourism products and services in the country become relatively cheap for tourists from countries with strong currencies. Another parameter in this regard is inflation category where there is a close correlation between the purchasing power of consumers, and rampant inflation rate. When the purchasing power of tourists decreases, they lose interest to travel to such destinations where life and travel expenditures are rather expensive and hardly affordable. However, when inflation decreases, more tourists visit the host country, where the cost of living and transportation is far cheaper.
The research findings have shown that tourism has played a vital role in many low-income countries like Iran. Over the recent years, the country has experienced severe fluctuations in the exchange rate and inflation rate. The accurate validation of exchange rate policies, inflation rate, and political risk is not only useful in the academic field but also for policymakers in practice to support the activity. The current research is innovative in terms of the subject and the econometric methods used. The research hypotheses are as follows: 1- There is a negative and significant relationship between political risk and tourism development. 2- There is a positive and significant relationship between the exchange rate and tourism development. 3- There is a negative and significant relationship between the inflation rate and tourism development.
Methodology
This research analyzes the effects of political risk, exchange rate, and inflation rate on the development of tourism in the case of Iran in the period of 2000-2021 and uses the non-linear econometric approach (NARDL) to estimate the short-term and long-term coefficients. To perform statistical and econometric analysis, Eviews 13 software was used. The QARDL method is also used to check the robustness of the results.
Findings
Short-term and long-term evaluations of NARDL model shows that the effect of a positive exchange rate shock on tourism development is positive and significant both in the short and long term, while the effect of a negative exchange rate shock on tourism development in both the short and long term is negative and significant. In the case of political risk and inflation rate, the results are the opposite of the exchange rate, so the impact of the positive shock of political risk and inflation rate on the development of tourism is negative and significant both in the short and long term, while the effect of the negative shock of political risk and inflation rate on it is positive and significant. The results of long-term and short-term estimates are consistent and differ only in the size of influence in terms of coefficients, and they confirm the hypothesis of the present study. The biggest impact in the short term, with a reduction factor of 0.611, is related to the inflation rate. In the long term, the greatest impact with a reduction factor of 0.790 units is related to the positive shock of political risk.
Discussion and Conclusion
The tourism economics literature has conclusively proved that tourism entering a country leads to economic development in the destination country. According to the reports of the World Tourism Organization (2018), tourism is the third largest industry in terms of global export earnings. Based on the results of this research, the following recommendations are suggested: Institutional reforms can help strengthen the economy of countries with low-quality institutions, and policymakers should consider the conditions of the tourism industry when setting country stabilization strategies. The increase in the inflation rate in recent years destroys the advantage of being cheap to travel to Iran due to the increase in the exchange rate, so policymakers should consider controlling the inflation rate.
Natural Resource Rent and Financial Development: Testing Financial Resource Curse Hypothesis in Iran
Dr Majid Aghaei, Dr Mahdieh Rezagholizadeh, Dr Mohammad Abdi, Mrs Rawa Mosavi,
Volume 24, Issue 4 (12-2024)
Volume 24, Issue 4 (12-2024)
Abstract
Aim and Introduction:
Based on empirical studies, in addition to the natural resources curse and the negative impact of natural resources income on the economic growth and development in resource-rich countries, some of these countries face various other issues. These issues include political and social problems, high levels of poverty and inequality, low levels of education, economic growth fluctuations, low institutional quality, and political instability (Sachs & Warner, 2001). In this context, one of the challenges in resource-rich countries, especially in developing countries, when compared to countries without natural resources, is the low level of financial development. Financial development has failed to play an effective role in the economic growth of these countries (Albadawi and Soto, 2012; Gelb, 2010; Samargandi et al., 2014; Frenkel, 2012). On the other hand, considering studies such as those by Pendergas et al., (2011), in most resource-rich countries that have managed to overcome the resource curse, a reasonable level of financial development is observed. Therefore, the first question that arises is whether there is a relationship between financial development and the abundance of natural resources in these countries. Given the role of the financial system in the optimal allocation of resources, what impact will the financial system have on the abundance of natural resources in resource-rich countries?
Iran is a country abundant in oil resources that has struggled to overcome the challenges and obstacles on the path to development, such as unemployment and economic growth fluctuations. Issues related to natural resources still persist in this country. Given the importance of the relationship between the financial sector and the abundance of natural resources for necessary policymaking on the path to economic growth and development, this study aims to examine and investigate the relationship between the abundance of natural resources and financial development in Iran using various financial development indicators and different econometric methods.
Methodology:
In order to investigate and empirically analyze the long-term and short-term dynamic relationship between variables, this research employs the Autoregressive Distributed Lag (ARDL) bounding test approach. The ARDL Bounding test method was developed by Pesaran and Shin (1999) and Pesaran et al. (2001). This method offers advantages over other conventional and previous cointegration methods, such as the Johansen and Toda-Yamamoto approaches. Some of its advantages include applicability regardless of considering the order of cointegration between variables, its ability to handle cases where variables are I (0) or I (1), suitability for limited sample sizes, obtaining efficient estimates without the risk of over-specification of the long-run model relationships, and presenting a reduced-form single-equation form rather than a systemic one for the long-run relationship.
The ARDL model estimates the short-term and long-term linear relationship between variables and cannot estimate non-linear relationships between the variables. Therefore, in this study, considering the possibility of a non-linear and asymmetric relationship between resource rents and financial development, the non-linear ARDL model, developed by Shin et al. in 2014, was employed to estimate the model. The NARDL model is a specific form of the ARDL model developed by Pesaran et al., (2001). It allows for the investigation of asymmetry in the long-term and short-term relationships between variables. The advantage of the NARDL method over other cointegration techniques is its superior performance in models with limited observations. Furthermore, this approach is applicable when the explanatory variables in the model are endogenous (Alam and Quazy, 2003).
Findings:
Results indicate that impact of natural resource abundance on the banking development index is not significant in the short term, while the lagged values of natural resources have a positive and significant impact on the banking development index in Iran. Considering the long-term estimation of the model, it can be concluded that the effect of natural resource abundance or, in other words, resource rents on banking sector development in Iran is positive and significant. Based on this result, the hypothesis of resource curse in the banking sector during the examined period in Iran is confirmed. Beck (2011) found that in natural resources rich countries, banks have better capitalization and profitability, but they provide fewer credits to the private sector and have less inclination towards financial development. Therefore, it appears that due to the bank-oriented nature of the financial system in Iran and the substantial injection of oil resources into banks, it has managed to foster the development of this sector.
The results of estimating the stock market development model indicate that natural resource abundance has a positive impact on stock market development in both the short and long terms, although it is not statistically significant. Therefore, it is not possible to make a clear statement about the presence or absence of the resource curse in the stock market. Based on studies like Asif et al. (2020) and Ali et al. (2022), the inclusion of various companies related to natural resources in the stock market can help finance these companies in their high-cost extraction and refining operations. Consequently, it can create various job opportunities and boost economic activities, leading to economic growth and development. Therefore, income derived from natural resources through an efficient stock market can contribute to economic growth.
The impact of natural resource abundance on the overall financial development index in the long term is positive but not statistically significant. Therefore, the hypothesis of the resource curse in Iran is not confirmed. Considering that the Iranian financial system is influenced by the banking system, and resource rents have been confirmed in the banking sector, this result can be justified as indicative of the greater flow of oil revenues into the Iranian banking system. However, this result may also indicate the dominant role of the government in the allocation of natural resource revenues and the weakness of the private sector and the capital market in the proper allocation of these revenues. The results of estimating the overall financial development index, which is obtained by combining stock market development and banking development, highlight the importance of financial integration and the utilization of the entire financial system's capacity to transform resource rents into a resource blessing.Top of Form
Discussion and Conclusion:
Based on the empirical results, the hypothesis of the presence of resource cures in the banking sector in Iran was confirmed, given the significant positive relationship between banking sector development and natural resource abundance during the study period. However, regarding the resource curse in the stock market, it is not possible to make a clear statement due to the insignificance of the coefficients.
According to the estimation of the NARDL model and the significant positive impact of positive shocks from natural resource rents on the banking development index on one hand, and the negative (although insignificant) impact of negative shocks on the other hand, the results of the NARDL model can be seen as confirming the findings of the ARDL model. Therefore, the hypothesis of resource blessing in the banking sector is cautiously confirmed based on this model.
In the case of the stock market, the NARDL results also do not provide conclusive evidence regarding the hypothesis of a resource curse in Iran's stock market due to the insignificance of the coefficients related to resource rents in the estimation of the stock market development index.
The results of the NARDL estimation in the overall financial development index model indicate that positive shocks from resource rents have a significant positive impact on the overall financial development, while negative shocks have a negative impact, although they are not statistically significant. Considering these results, the dominant role of the banking system in Iran's financial system is confirmed, and thus, special attention from the government to the capital market as one of the most effective components of the financial system seems necessary.Top of Form
Based on empirical studies, in addition to the natural resources curse and the negative impact of natural resources income on the economic growth and development in resource-rich countries, some of these countries face various other issues. These issues include political and social problems, high levels of poverty and inequality, low levels of education, economic growth fluctuations, low institutional quality, and political instability (Sachs & Warner, 2001). In this context, one of the challenges in resource-rich countries, especially in developing countries, when compared to countries without natural resources, is the low level of financial development. Financial development has failed to play an effective role in the economic growth of these countries (Albadawi and Soto, 2012; Gelb, 2010; Samargandi et al., 2014; Frenkel, 2012). On the other hand, considering studies such as those by Pendergas et al., (2011), in most resource-rich countries that have managed to overcome the resource curse, a reasonable level of financial development is observed. Therefore, the first question that arises is whether there is a relationship between financial development and the abundance of natural resources in these countries. Given the role of the financial system in the optimal allocation of resources, what impact will the financial system have on the abundance of natural resources in resource-rich countries?
Iran is a country abundant in oil resources that has struggled to overcome the challenges and obstacles on the path to development, such as unemployment and economic growth fluctuations. Issues related to natural resources still persist in this country. Given the importance of the relationship between the financial sector and the abundance of natural resources for necessary policymaking on the path to economic growth and development, this study aims to examine and investigate the relationship between the abundance of natural resources and financial development in Iran using various financial development indicators and different econometric methods.
Methodology:
In order to investigate and empirically analyze the long-term and short-term dynamic relationship between variables, this research employs the Autoregressive Distributed Lag (ARDL) bounding test approach. The ARDL Bounding test method was developed by Pesaran and Shin (1999) and Pesaran et al. (2001). This method offers advantages over other conventional and previous cointegration methods, such as the Johansen and Toda-Yamamoto approaches. Some of its advantages include applicability regardless of considering the order of cointegration between variables, its ability to handle cases where variables are I (0) or I (1), suitability for limited sample sizes, obtaining efficient estimates without the risk of over-specification of the long-run model relationships, and presenting a reduced-form single-equation form rather than a systemic one for the long-run relationship.
The ARDL model estimates the short-term and long-term linear relationship between variables and cannot estimate non-linear relationships between the variables. Therefore, in this study, considering the possibility of a non-linear and asymmetric relationship between resource rents and financial development, the non-linear ARDL model, developed by Shin et al. in 2014, was employed to estimate the model. The NARDL model is a specific form of the ARDL model developed by Pesaran et al., (2001). It allows for the investigation of asymmetry in the long-term and short-term relationships between variables. The advantage of the NARDL method over other cointegration techniques is its superior performance in models with limited observations. Furthermore, this approach is applicable when the explanatory variables in the model are endogenous (Alam and Quazy, 2003).
Findings:
Results indicate that impact of natural resource abundance on the banking development index is not significant in the short term, while the lagged values of natural resources have a positive and significant impact on the banking development index in Iran. Considering the long-term estimation of the model, it can be concluded that the effect of natural resource abundance or, in other words, resource rents on banking sector development in Iran is positive and significant. Based on this result, the hypothesis of resource curse in the banking sector during the examined period in Iran is confirmed. Beck (2011) found that in natural resources rich countries, banks have better capitalization and profitability, but they provide fewer credits to the private sector and have less inclination towards financial development. Therefore, it appears that due to the bank-oriented nature of the financial system in Iran and the substantial injection of oil resources into banks, it has managed to foster the development of this sector.
The results of estimating the stock market development model indicate that natural resource abundance has a positive impact on stock market development in both the short and long terms, although it is not statistically significant. Therefore, it is not possible to make a clear statement about the presence or absence of the resource curse in the stock market. Based on studies like Asif et al. (2020) and Ali et al. (2022), the inclusion of various companies related to natural resources in the stock market can help finance these companies in their high-cost extraction and refining operations. Consequently, it can create various job opportunities and boost economic activities, leading to economic growth and development. Therefore, income derived from natural resources through an efficient stock market can contribute to economic growth.
The impact of natural resource abundance on the overall financial development index in the long term is positive but not statistically significant. Therefore, the hypothesis of the resource curse in Iran is not confirmed. Considering that the Iranian financial system is influenced by the banking system, and resource rents have been confirmed in the banking sector, this result can be justified as indicative of the greater flow of oil revenues into the Iranian banking system. However, this result may also indicate the dominant role of the government in the allocation of natural resource revenues and the weakness of the private sector and the capital market in the proper allocation of these revenues. The results of estimating the overall financial development index, which is obtained by combining stock market development and banking development, highlight the importance of financial integration and the utilization of the entire financial system's capacity to transform resource rents into a resource blessing.Top of Form
Discussion and Conclusion:
Based on the empirical results, the hypothesis of the presence of resource cures in the banking sector in Iran was confirmed, given the significant positive relationship between banking sector development and natural resource abundance during the study period. However, regarding the resource curse in the stock market, it is not possible to make a clear statement due to the insignificance of the coefficients.
According to the estimation of the NARDL model and the significant positive impact of positive shocks from natural resource rents on the banking development index on one hand, and the negative (although insignificant) impact of negative shocks on the other hand, the results of the NARDL model can be seen as confirming the findings of the ARDL model. Therefore, the hypothesis of resource blessing in the banking sector is cautiously confirmed based on this model.
In the case of the stock market, the NARDL results also do not provide conclusive evidence regarding the hypothesis of a resource curse in Iran's stock market due to the insignificance of the coefficients related to resource rents in the estimation of the stock market development index.
The results of the NARDL estimation in the overall financial development index model indicate that positive shocks from resource rents have a significant positive impact on the overall financial development, while negative shocks have a negative impact, although they are not statistically significant. Considering these results, the dominant role of the banking system in Iran's financial system is confirmed, and thus, special attention from the government to the capital market as one of the most effective components of the financial system seems necessary.Top of Form
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