The role of abundant natural resources, international trade, and financial development in Iran's economic development

Authors

1 PhD student, Department of Economics, Abhar Branch, Islamic Azad University, Abhar, Iran.

2 Ph.D. Department of Economics, Islamic Azad University, Abhar Branch, Zanjan, Iran

3 Assistant Professor, Department of Economics, Abhar Branch, Islamic Azad University, Abhar, Iran

Abstract

Background of the problem: Studying the abundance of natural resources in Iran and its effects on other economic sectors is a very important and broad issue that has spread to other fields such as sociology, political science, and even technical issues. This issue is due to the importance of this section of the national economy and its impact on the surrounding world in critical and even non-critical situations. The first concept that comes to mind when natural resources are mentioned is the resource curse (also known as the paradox of plenty or the poverty paradox), which makes it difficult to accept natural resources as a growth factor. Empirical evidence indicates that most countries dependent on natural resources have low economic development. The high dependence of these countries on the wealth of natural resources can lead to a decrease in the ability to allocate financial resources, through high fluctuations in the real exchange rate and increasing uncertainty in investment decisions. The decrease in financial demand due to the contraction of the tradable sector also hinders economic development on one hand. However, strengthening the financial system can lead to a positive relationship between the wealth of these resources and economic growth in these countries by transferring the income from natural resources to productive investment and the real sector of the economy. On the other hand, the financial sector plays a central role in economic development and growth, because it plays an intermediary role in the allocation of resources to all sectors of the economy, by reducing financing costs and also encouraging savings and their optimal use, it is a significant matter and it contributes to long-term economic growth. Patrick, H.T. (1996) believes that the relationship between financial development and sustainable development depends on the degree of development of each country. In the initial stages of development, the improvement of financial services, the expansion of new financial instruments, and changes in the financial structure lead to economic growth, but in the continuation of the process of economic development, financial developments follow the demand for it, and the demand for newer types of financial tools and services becomes the determining factor and leads to the sustainable development of countries.
The purpose of the research: The present study investigated the role of the abundance of natural resources, international trade, and financial development in the economic development of Iran, whether the abundance of natural resources has contributed to the economic growth and development of Iran, and to what extent the role of financial and commercial markets in Iran is that the application of the Kalman Filter Model is examined in detail. The development of the financial sector is very important in resource-rich countries. Because the income from natural resources is one of the most important sources of government income, if they can use these resources and the income attained from them to develop the financial sector, they can achieve economic development. Since the political, economic, and social conditions governing a country can affect how the income from natural resources affects the development of the financial sector of the country, then it can be said that the quality of the institutions of a country affects how the income from natural resources affects the development of the financial sector. Since the political, economic, and social conditions governing a country can affect how the income from natural resources affects the development of the financial sector of the country, then it can be said that the quality of the institutions of a country affects how the income from natural resources affects the development of the financial sector.
Research method: The present study examines the role of the abundance of natural resources, international trade, and financial development in the economic development of Iran for the years 1375 to 1400 (Iranian calendar) using the parameter estimation method with variable coefficients and the Kalman Filter Model.
Findings: The present study investigated the role of the abundance of natural resources, international trade, and financial development in the economic development of the country and applied the Kalman Filter Model from 1375 to 1400 (Persian Calendar). Economic development is widely affected by economic growth in economic literature. In general, the theoretical literature shows that the abundance of natural resources, international trade, financial development, trade openness, and institutional quality have a positive effect on economic development. However according to the results, the product of financial development and institutional quality in the abundance of natural resources and the inflation rate have a negative effect and the growth rate of oil revenues, commercial freedom, and physical investment have had a positive effect on human development and the country's production growth rate. The research findings offer some possible policy implications. Government institutions improve institutional quality by ensuring the rule of law, effective governance, and property rights. They are necessary to ensure the efficient use of abundant natural resources. Also, to improve the impact of international trade on economic development, regulatory systems should be implemented to minimize the trade deficit. The use of expert human capital, research and development, improvement of institutional quality, and financial development are approaches that can be used to increase investment attraction capacities. These factors better equip countries to benefit from technological advances resulting from international trade and trade openness. The stock market in the country should be strengthened because it is a more effective tool in the share of capital accumulation in economic development. Together, these initiatives boost economic growth, which in turn improves human development; the main channel of influencing financial development is done through increasing investment efficiency, quality of regulations, and reducing economic sanctions and governance indicators. Therefore, the way of financial market liberalization, the weakness of financial system management, the lack of formation of coherent financial markets, and the benefit of regulations in the country can be considered as the reasons for the reduction of investment efficiency through the sub-optimal allocation of resources in the country. As a result, more attention and care should be taken in the country to develop and make the financial markets more efficient, and as a result, allocate resources more efficiently and increase investment efficiency. It is also suggested that the country's banking sector, by optimizing its activities, should try to direct more credits towards productive investment projects of the private sector. Because of the prosperity of the private sector and the increase of competition in the country and the use of economic freedom policies, the development of financial markets has increased and leads to greater dynamism of the economy.
Conclusion: According to the results; the inflation rate, the product of financial development, and institutional quality hurt the abundance of natural resources and the growth rate of oil revenues, commercial freedom, and physical investment have had a positive effect on human development and the economic growth rate of the country. During the studied period, the elasticity of the economic growth rate compared to the financial development in the abundance of natural resources is less than unity and is equal to -0.28 and for human development is equal to 0.07. Furthermore, based on the results, the sensitivity of human development to the institutional quality in the abundance of natural resources is higher than other variables. In other words, the main channel of human development shows its institutional quality. The factor of political stability can have a significant impact on human development and production due to its connection with the outside world. While the possibility of political stability and institutional quality decreases, the motivation for investment decreases. The use of expert human capital, research and development, improvement of institutional quality, and development of financial markets are approaches that can be used to increase investment attraction capacities. Moreover, the prosperity of the private sector, the increase of competition in the country, and the use of economic freedom policies lead to greater economic dynamism.

Keywords

References

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