Analysing the Trade-GDP Nexus in Iran: A Bounds Testing Approach

Abstract

This paper examines the major sources of economic growth in Iran using annual time series data (1960 to 2003). The time series properties of the data are analysed by Perron’s innovational outlier and additive outlier models. The empirical results based these models show that there is not enough evidence against the null hypothesis of unit root for all of the variables under investigation. Moreover, we found that the most significant structural breaks over the last four decades which have been detected endogenously in fact correspond to the regime change (e.g the 1979 Islamic revolution) and the Iraqi war in the 1980s. Finally, an ARDL methodology is employed to obtain the short and long-term determinants of economic growth. The results show that while the effects of gross capital formation and oil exports are highly significant, as expected, non-oil exports and human capital have an even smaller effect than had been anticipated.structural break, unit root tests, ARDL method, Iranian economy