Economic history of Iran - AbsoluteAstronomy.com

Pahlavi Era

Reza Shah Pahlavi (r. 1925–41) improved the country’s overall infrastructure, implemented educational reform, campaigned against foreign influence, reformed the legal system, and introduced modern industries. During this time, Iran experienced a period of social change, economic development, and relative political stability.
In the interwar period, modern industries were introduced. Whereas fewer than 20 modern industrial plants existed in 1925, by 1941 more than 800 new plants had been established, with the intention of reducing the country’s dependence on imports. The state encouraged industrialization by raising tariffs, financing modern industries, and imposing government monopolies. Changes in the legal system, tax structure, and trade policies attracted domestic financial resources and led to the emergence of a group of new, young entrepreneurs. The shah’s court became the biggest investor in the new industries. Primarily by confiscating real estate, the shah himself became the country’s richest man. Increased investment in mining, construction, and the manufacturing sector occurred, and infrastructure investment grew significantly. Iran had only 250 kilometers of railroads and 2,400 kilometers of gravel roads in 1925; by 1938 these totals had increased to 1,700 and 12,000 kilometers, respectively. Industrial growth was not balanced, however. Integration among sectors and industries was absent, and the new industries met only part of the growing domestic demand. Agriculture, from which 90 percent of the labor force made its living, did not benefit from economic reform. Furthermore, the expanding areas of the economy were not labor-intensive. Modern sectors (Caspian Sea fisheries, railroads, seaports, the oil industry, modern factories, and coal fields) absorbed a total of only about 170,000 workers, less than 4 percent of the labor force.

The government managed the expansion of international trade by techniques such as the foreign-exchange controls imposed in 1936. Many new items were among the imported goods required by industry, the military, railroads, and other areas of infrastructure investment. Traditional agricultural and industrial export products were replaced by oil exports. Germany

Germany

Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

became Iran’s primary trading partner by 1940, accounting for 42 percent of its foreign trade; the United States

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

was second, with 23 percent. The Soviet Union

Soviet Union

The Soviet Union , officially the Union of Soviet Socialist Republics , was a constitutionally socialist state that existed in Eurasia between 1922 and 1991....

also was a major trading partner in this period. Despite many advances in domestic and foreign economic policy, however, Iran remained an exporter of raw materials and traditional goods and an importer of both consumer and capital goods in the years before World War II.

Reza Shah Pahlavi, who abdicated in 1941, was succeeded by his son, Mohammad Reza Shah Pahlavi (r. 1941–79). No fundamental change occurred in the Iranian economy during World War II (1939–45) and the years immediately following. However, between 1954 and 1960 a rapid increase in oil revenues and sustained foreign aid led to greater investment and fast-paced economic growth, primarily in the government sector. Subsequently, inflation increased, the value of the national currency (the rial) depreciated, and a foreign-trade deficit developed. Economic policies implemented to combat these problems led to declines in the rates of nominal economic growth and per capita income by 1961.
In response to these setbacks, Iran initiated its third economic development plan

Development Plan

A development plan is an aspect of town and country planning in the United Kingdom comprising a set of documents that set out the local authority's policies and proposals for the development and use of land in their area...

(1962–68) with an emphasis on industrialization. New economic policies significantly altered the role of the private sector. The expansion of private and public banks, as well as the establishment of two specialized banks, provided reliable credit markets for medium- and large-scale private manufacturing enterprises. Not limited to cheap credit, government programs also included a wide range of incentives to encourage investment in new industries by both Iranian and foreign businesses. Most new investment was a joint effort between either the public sector and foreign investors or private businesses and foreign corporations. Investment in roads, highways, dams, bridges, and seaports also increased. With government support, part of the agricultural sector also attracted significant investment. Many large-scale agricultural operations in meat, dairy products, and fruit production were established. Small-scale farmers, however, did not benefit from the new investment opportunities.

Under the fourth and the fifth economic development plans (1968–73; 1973–78), the Iranian economy became increasingly open to imports and foreign investment

Foreign Direct Investment in Iran

Foreign direct investment in Iran has been hindered by unfavorable or complex operating requirements and by international sanctions, although in the early 2000s the Iranian government liberalized investment regulations. Iran ranks 62nd in the World Economic Forum's 2011 analysis of the global...

. A combination of oil revenues, public spending, and foreign and domestic investments enlarged the middle class in major cities

Social class in Iran

Classes in Iran have been divided up into upper class, propertied middle class, salaried middle class, working class, independent farmers, rural wage earners...

, particularly Tehran

Tehran

Tehran , sometimes spelled Teheran, is the capital of Iran and Tehran Province. With an estimated population of 8,429,807; it is also Iran's largest urban area and city, one of the largest cities in Western Asia, and is the world's 19th largest city.In the 20th century, Tehran was subject to...

. In the wake of the spike in crude oil prices that followed the 1973 war pitting Egypt and Syria against Israel

Yom Kippur War

The Yom Kippur War, Ramadan War or October War , also known as the 1973 Arab-Israeli War and the Fourth Arab-Israeli War, was fought from October 6 to 25, 1973, between Israel and a coalition of Arab states led by Egypt and Syria...

, the process of industrialization and consumption grew rapidly. Between 1973 and 1977, the specialized banks provided more than 200 billion rials to the manufacturing sector, and the increase in investment averaged 56 percent per year. A flood of imported goods and raw materials overwhelmed the capacity of seaports and warehouses. The military was also a beneficiary of the new economic and social conditions. Military personnel, modern artillery and equipment, and military training absorbed a major part of the budget.
Between fiscal year 1964 and FY 1978, Iran’s gross national product grew at an annual rate of 13.2 percent at constant prices. The oil, gas, and construction industries expanded by almost 500 percent during this period, while the share of value-added manufacturing increased by 4 percent. Women’s participation in the labor force in urban areas increased. Large numbers of urban Iranian women

Iranian women

Iranian women in this article refers to women of, or from, traditional Persian or modern Iranian culture.-Depictions and appearance:...

, from varying social strata

Social class in Iran

Classes in Iran have been divided up into upper class, propertied middle class, salaried middle class, working class, independent farmers, rural wage earners...

, joined the semiskilled and skilled labor forces. In addition, the number of women enrolling in higher education increased from 5,000 in FY 1967 to more than 74,000 in FY 1978.

Economic growth, however, became increasingly dependent on oil revenues in the 1970s. By 1977, oil revenues had reached US$20 billion per year (79 percent of total government revenues). Other sectors of the economy and regions of the country did not experience a uniform pattern of growth during this period. Agriculture

Agriculture in Iran

Roughly one-third of Iran's total surface area is suited for farmland, but because of poor soil and lack of adequate water distribution in many areas, most of it is not under cultivation....

, traditional and semi-traditional industries, and the services sector did not thrive to the same extent as the “modern” state-sponsored manufacturing industries, which accounted for only 6 percent of industrial employment. As employment opportunities in rural areas and traditional industries decreased, public employment in urban areas increased. The proportion of self-employed Iranians remained stable.

Accelerated development of the middle class was a major outcome of the 1960s and 1970s. Among this class were the new professional intelligentsia, called motekhassesin (experts). Their common denominator was the professional, cultural, or administrative expertise acquired through modern education. Nevertheless, the patterns of economic growth and regional development along with the political underdevelopment of the shah’s regime in areas such as civil institutions, human rights, and property rights limited opportunities for the majority of Iranians to develop fully their social and economic potential. Economic and social polarization minimized competition among businesses and limited development to the part of the economy concerned with the interests of dominant groups closely tied to the shah’s court and the state. Most Iranians were excluded from political and economic decision making.

After the 1979 revolution

According to the 1979 Iranian Constitution, it is the duty of the Islamic government to furnish all citizens with equal and appropriate opportunities, to provide them with work, and to satisfy their essential needs, so that the course of their progress may be assured. Iran's long-term objectives since the 1979 revolution have been economic independence

Independence

Independence is a condition of a nation, country, or state in which its residents and population, or some portion thereof, exercise self-government, and usually sovereignty, over its territory....

, full employment

Full employment

In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....

, and a comfortable standard of living for citizens, but at the end of the 20th century, the country's economic future faces many obstacles. Iran's population

Demographics of Iran

Iran's population increased dramatically during the later half of the 20th century, reaching about 75 million by 2011. In recent years, however, Iran's birth rate has dropped significantly. Studies project that Iran's rate of population growth will continue to slow until it stabilizes above 100...

more than doubled in a 20-year period, with an increasingly young population. Although a relatively large part of the population engages in farming, agricultural production has fallen consistently since the 1960s. By the late 1990s, Iran was a major food importer, and economic hardship in the countryside had driven vast numbers of people to migrate to cities.

The rates of literacy and life expectancy in Iran

Demographics of Iran

are high for the region, but so is the unemployment rate, and inflation is in the range of 20% annually. Iran remains highly dependent on one major industry, the extraction of petroleum

Petroleum

Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

and natural gas

Natural gas

Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

for export, and the government faces increasing difficulty in providing opportunities for a younger, better educated workforce. Such lack of opportunities has led to a growing sense of frustration among lower- and middle-class Iranians

Iranian peoples

The Iranian peoples are an Indo-European ethnic-linguistic group, consisting of the speakers of Iranian languages, a major branch of the Indo-European language family, as such forming a branch of Indo-European-speaking peoples...

.

After the end of hostilities with Iraq in 1988, the government tried to develop the country's communication

Communications in Iran

Iran’s telecommunications industry is almost entirely state-owned, dominated by the Telecommunication Company of Iran . Fixed-line penetration in 2004 was relatively well-developed by regional standards, standing at 22 lines per 100 people, higher than Egypt with 14 and Saudi Arabia with 15,...

, transportation

Transport in Iran

Transport in Iran is inexpensive because of the government's subsidization of the price of gasoline. The downside is economic inefficiency because of highly wasteful consumption patterns, contraband with neighboring countries and air pollution...

, manufacturing, health care

Health care in Iran

Health care in Iran and medical sector's market value was almost US $24 billion in 2002 and was forecast to rise to US $31 billion by 2007. With a population of almost 70 million, Iran is one of the most populous countries in the Middle East...

, education

Education in Iran

Education in Iran is highly centralized and is divided to K-12 education and higher education. K-12 education is supervised by the Ministry of Education and higher education is under supervision of Ministry of Science and Technology....

and energy infrastructures (including its prospective nuclear power facilities) and has begun the process of integrating its communication and transportation infrastructure with that of neighboring states. It is estimated that Iran sustained a loss of $500 billion through the Iraq war.

In 1996, the U.S. Government passed the Iran and Libya Sanctions Act

Iran and Libya Sanctions Act

The Iran and Libya Sanctions Act of 1996 was a 1996 act of Congress that imposed economic sanctions on firms doing business with Iran and Libya. On September 30, 2006, the act was renamed to the Iran Sanctions Act , as it no longer applied to Libya, and extended until December 31, 2011...

(ILSA) which prohibits U.S. (and non-U.S. companies) from investing and trading with Iran for more than $20 million annually, with the exception, since 2000, for items like pharmaceuticals, medical equipment.

Review of Iran's successive economic plans (1991-2010)

Plans (main data sources: Iranian Parliament & Ministry of Commerce Ministry of Commerce (Iran) The Ministry of Commerce of Iran was the main organ of the Government in charge of the regulation and implementation of policies applicable to domestic and foreign trade... )	1991-2001 (achieved)	2005-10 (target)	2009-10 (achieved)
Number of articles to be implemented in the plan		290	117
Economic growth	3.9% on average	8% on average	6.3% on average (2006-10)
Liquidity growth	27.3% on average	<20% on average	33% on average
Inflation	23% on average	<10% on average	16% on average
Unemployment rate Economy of Iran The economy of Iran is the eighteenth largest in the world by purchasing power parity and according to Iranian officials' claims is going to become the 12th largest by 2015. The economy of Iran is a mixed and transition economy with a large public sector and some 50% of the economy centrally planned...		11% by 2010	12% on average (2005-10)
Jobs creation per year by 2010		848,000 jobs/year	725,000 jobs/year
Labor productivity growth	1.3% on average	3.5%
Investment growth Economy of Iran The economy of Iran is the eighteenth largest in the world by purchasing power parity and according to Iranian officials' claims is going to become the 12th largest by 2015. The economy of Iran is a mixed and transition economy with a large public sector and some 50% of the economy centrally planned...	4.3% on average	12.2%
Population growth	1.5% on average	1.4%
Non-oil export growth	5.6% on average	10.7%
Technology access index		0.45	0.26
Ratio of research expenditures to GDP	0.4% (2001)	2.5%	0.87%
Ratio of high-tech exports to total non-oil exports		6	2
New oil Oil reserves in Iran Oil reserves in Iran, according to its government, rank third largest in the world at approximately as of 2007, although it ranks second if Canadian reserves of unconventional oil are excluded. This is roughly 10% of the world's total proven petroleum reserves. Iran is the world's fourth largest... and gas Natural gas reserves in Iran According to Iran Petroleum Ministry, Iran's proved natural gas reserves are about or about 15.8% of world's total reserves, of which 33% are as associated gas and 67% is in non associated gas fields... fields discovered (2005-10)			19 new oilfields and eight new gas reserves
Ratio of the expenditures of top 10% to bottom 10% households	19.4 (2001)		14
Gini coefficient Gini coefficient The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....	0.43 (2001)		0.38 according to government
Social welfare index Bonyad Bonyads are charitable trusts in Iran that play a significant role in Iran's non-petroleum economy, controlling an estimated 20% of Iran's GDP. Exempt from taxes, they have been called "bloated", and "a major weakness of Iran’s economy", and criticized for reaping "huge subsidies from government",...	423 (2001)		800
Population below the poverty line (the middle 50%)	15% (2001)		7% according to government
Penetration rate - mobile users		50%	60% (2009)
Fixed telephone lines		36 million fixed lines	24.8 million (2008)
Internet users		30 million users	23 million (2008)

External links

Economic History of Iran (Including in ancient times) - Encyclopedia Iranica
Iran's Foreign Trade Regime (Many historical data and statistics about Iran's economy) - Ministry of Commerce (Iran)
Ministry of Commerce (Iran)
The Ministry of Commerce of Iran was the main organ of the Government in charge of the regulation and implementation of policies applicable to domestic and foreign trade...
History of Banking in Iran
Iran's Third Development Plan: an Appraisal by Dr. Jahangir Amuzegar
Jahangir Amuzegar
Jahangir Amuzegar is a distinguished Iranian economist, academic and politician.An economist by training, Amuzegar served as Minister of Commerce and Minister of Finance of Iran. He also acted as executive director of International Monetary Fund. Amouzegar hold a bachelor degree in economy from...
Where Did Iran's Islamic Economy Come From and Where Did it Go? by Dr. Sohrab Behdad

The source of this article is wikipedia, the free encyclopedia. The text of this article is licensed under the GFDL.

Pahlavi Era

After the 1979 revolution

Review of Iran's successive economic plans (1991-2010)

See also

External links