Determinants of Production Growth with Emphasis on the Components Highlighted by the Iran’s Supreme Leader: Evidence from Developing Countries

Extended Abstract
 Introduction and Objectives: Economic growth is generally regarded as one of the most important macroeconomic variables that reflect the overall performance and welfare of a nation. Among the key drivers of growth, production expansion occupies a pivotal role in enhancing economic stability, job creation, and social welfare. Since 2019, the Supreme Leader of the Islamic Republic of Iran has repeatedly emphasized “production growth” in his annual New Year mottos, highlighting its strategic importance for national progress and economic independence. Production growth is not merely a quantitative goal but a multidimensional process that contributes to reducing inflation and unemployment, strengthening purchasing power, and promoting exports. These dynamics collectively improve the foreign exchange balance and enhance the stability of financial and currency markets. Moreover, production growth increases the tax revenues of the government, thereby helping to reduce budget deficits — a chronic challenge in many developing economies.
In line with the Leader’s guidance, achieving sustainable production growth requires harnessing internal capacities and national resources. Various aspects of these capacities have been underscored in his speeches and annual meetings with state officials. Consequently, policymakers and economic planners must adopt a multidimensional and capacity-oriented approach to stimulate production. The present study seeks to identify and empirically evaluate the factors influencing production growth in developing countries, with particular emphasis on the domestic capabilities and principles emphasized by the Supreme Leader in previous years.
Methodology: To achieve this goal, the study examines the effects of several explanatory variables—namely, oil rent, research and development (R&D) expenditure, physical capital, labor force, rule of law, foreign direct investment (FDI), and inflation—on economic growth. The empirical model is formulated as follows:
gri,t=β0+ β1ori,t+ β2rdi,t+ β3ki,t+ β4li,t+ β5lawi,t + β6fdii,t+ β7infi,t+εi,t
This research is based on both documentary and library methods and employs econometric techniques using panel data analysis. The model is estimated for 19 oil-exporting developing countries over the period 2010–2020, using Stata 15 software. Two complementary analytical approaches are adopted:

Panel data regression analysis to determine the quantitative effect of each explanatory variable on growth; and
Graphical analysis to visualize long-term relationships based on ten-year average indicators (2014–2023) for 26 developing countries.

In accordance with economic theory and previous empirical literature, foreign direct investment and inflation are incorporated as key explanatory variables. FDI is measured by the net inflows of foreign investment, while inflation is proxied by the GDP deflator index.
Results and Findings: The estimation results reveal that oil rent, physical capital, rule of law, and foreign direct investment have positive and statistically significant effects on production growth, whereas inflation exerts a negative and significant effect. The coefficients are interpreted as follows:

Oil rent: A one-unit increase in oil rent raises economic growth by approximately 0.48 units. This positive short-term effect suggests that oil revenues stabilize exchange rates and provide financial support for producers. However, excessive dependence on oil rents may create vulnerabilities in the long run.
Physical capital: A one-unit increase in physical capital enhances growth by 0.37 units, consistent with neoclassical growth theory, which posits that capital accumulation drives productivity and output.
Rule of law: An improvement of one unit in the rule of law index increases growth by 3.97 units, indicating that institutional quality and effective enforcement of production-supportive laws are crucial for sustained development.
Inflation: A one-unit increase in inflation reduces economic growth by 0.16 units. High inflation erodes purchasing power, discourages investment, and generates macroeconomic instability, which collectively hinder productive activity.
Foreign direct investment: A one-unit increase in FDI inflows boosts growth by 0.89 units. FDI contributes to technology transfer, management expertise, and capital inflows, though its effectiveness depends on institutional quality and absorptive capacity.

For R&D expenditure and labor force, no statistically significant relationship with growth was found within the studied period, possibly due to inadequate R&D spending and structural inefficiencies in the labor market across developing economies.
Discussion and Interpretation: The dual-phase analysis—covering econometric estimation (2010–2020) and graphical assessment (2014–2023)—provides comprehensive insight into both short-term and long-term dynamics of growth. The graphical results demonstrate a positive association between people’s participation, physical capital, human capital, and R&D activities with economic growth, while confirming a negative association between rent-seeking behavior and growth performance.
These findings imply that while oil rent may contribute positively to growth in the short run through fiscal expansion and liquidity support, its long-term effects may turn adverse by fostering rent-seeking incentives, dependency, and reduced innovation. Therefore, achieving sustainable production growth requires a deliberate shift from rent-based to knowledge-based and productivity-driven growth models.
The results further emphasize the importance of institutional quality (rule of law) as a catalyst for effective policy implementation. A robust legal framework ensures that production-oriented policies are not only legislated but also enforced in practice, thereby promoting private sector confidence, investment, and fair competition. Similarly, inflation control remains vital to maintaining macroeconomic stability and preserving the real value of savings and investments.
Conclusion and Policy Recommendations: This study provides empirical evidence that oil rent, capital formation, the rule of law, and foreign direct investment play significant roles in promoting economic growth among oil-exporting developing countries. Conversely, inflation acts as a major impediment to growth. The absence of significant effects for R&D and labor force variables highlights the need for stronger institutional and policy frameworks to enhance human capital development and innovation capacity.
In conclusion, the path toward sustainable and inclusive growth lies in reinforcing domestic capacities and reducing reliance on rent-based revenues. Policymakers are therefore encouraged to:

Strengthen human capital through education, training, and skill development.
Increase investment in research and development to stimulate technological innovation.
Enhance physical infrastructure and capital formation to support productive sectors.
Foster institutional quality and rule of law to ensure the effective implementation of production-supportive policies.
Control inflationary pressures and discourage rent-seeking activities that distort resource allocation.

By prioritizing these areas, developing economies can lay the foundation for a resilient, knowledge-based, and sustainable production system consistent with the strategic visions emphasized by the Supreme Leader.