Blogging the Iran's
Economy Conference
October 15, 2010
Session 1.1: Oil Prices and Housing
Since the end of the Iran-Iraq war in 1988, the Iranian economy has experienced several periods of vacillating growth in its housing sector. In the opening session of the Conference on Iran’s Economy this morning, Nasser Khiabani, an economics professor at the Institute for Management and Planning Studies in Tehran, presented findings that showed a strong correlation between fluctuating oil prices and a volatile housing market.
In its third year, the conference is jointly hosted by the University of Chicago and University of Illinois at Urbana-Champaign, and gathers economist and scholars from around the world together to focus on the evolving role of Iran in the Middle East and the global economy. Of more 50 papers submitted to the conference this year, only 15 authors were selected to present their work at the University of Chicago’s downtown Gleacher Center on October 15 and 16.
Khiabani’s paper, offers the first attempt at modeling housing prices in Iran. It does so by identifying three major house price booms in the Iranian market between 1988 and 2006.
To investigate the role of oil prices had on this period, Khiabani developed a model that looked at oil income, appreciation of real exchange rate, and increase in housing price in Iran. He concluded that shocks in oil prices explain a substantial part of housing market fluctuations, and real exchange rates have a crucial role in determining the behavior of house prices in the country.
Following Khiabani’s presentation, Hashem Pesaran, professor of economics at the University of Cambridge and University of Southern California, refuted some of the methods used in Khiabani’s study, including the size of his dataset and his focus on oil prices instead of oil income. He said oil income would give a more accurate picture of disposable income in Iran.
“House prices cannot rise higher than real disposable income,” Pesaran said. “Whether oil prices rise ore fall doesn’t matter if real disposable income doesn’t change.”
Session 1.2: Exchange rate volatility
Sahar Bahmani, assistant professor at Georgia Southern University, presented research that she (and her father Mohsen Bahmani-Oskooee, a economist at University of Wisconsin at Madison) performed on exchange rate volatility.
At an October 15 session of the Conference on Iran’s Economy, hosted by the University of Chicago and the University of Illinois at Urban-Champaign, she explained that exchange rate volatility serves as an important variable that impacts the demand for money in Iran, building on similar 1963 research by Robert Mundell at Columbia University.
To look at how volatility impacts the demand for money, Bahmani looked at four variables: income, inflation rate, exchange rate, and exchange rate volatility. Bahmani found that all four variables had both short-term and long-term effects on money demand.
In response to her paper, Hashem Pesaran, professor of economics at the University of Cambridge and University of Southern California, praised the mechanics in which they produced her results, but also questioned their use of annual data. When studying volatility, he pointed out, it’s important to use high frequency data. Annual data is anything but high frequency. He raised this concern both from a theoretical perspective, but also because when he ran their equations using quarterly data, he was not able to find the same connections between their variables and money demand.
-Andrew Means
Session 2.1: Efficiency in the Tehran Stock Exchange
“Little is know about Iran’s stock exchange,” said Mohammad R. Jahan-Parvar, assistant professor at East Carolina University, to introduce his morning lecture at the Conference on Iran’s Economy on October 15.
In his 2010 paper, “Efficiency, Risk, and Events in the Tehran Stock Exchange,” Jahan-Parvar and two colleagues from Illinois State University attempt to understand the basic efficiency and volatility of the Tehran Stock Exchange by analyzing its market index returns.
Jahan-Parvar said that since the mid-1990s, there has been growing interest in emerging and frontier financial markets among both financial scholars and practitioners. Still, the Tehran Stock Exchange, the sole equity market in Iran, has been one of the least studied.
Using a variety of analytical models, he looked at three market indexes: market price, total returns, and industrial index. Results were mixed. Among his findings, Jahan-Parvar discovered that when using monthly data, Iran’s stock market was fairly efficient—its prices accurately reflected available information on a particular stock or market. When data was expanded to include daily fluctuations, however, efficiency was lost.
Jahan-Parvar also explained that the information that shapes expectations in the Iranian market closely follows events—changes in administration, international events, and war—going on in the rest of the world.
He said these results were similar to what has been seen in Iran’s neighboring countries.
Session 2.2: Aviation: A Victim of Sanctions?
Closing out a Market and Management Efficiency session, Ali Dadpay, assistant professor of economics at Clayton State University School of Business in Georgia, shared his research on how sanctions are influencing the Iranian aviation industry.
Dadpay received his PhD in economics from the University of Wisconsin at Madison, and is also on the faculty at Sharif University of Technology in Iran. He has spent the last several months trying to gather data on the aviation industry in Iran. “Data is like aviation in Iran,” he said during the final morning session at the Conference on Iran’s Economy. “It is massive and a mess.”
The aviation industry in Iran has experienced massive growth since the late 1980’s, growing from 4.2 million domestic passengers in 1988 to 12.8 million passengers in 2008. This rapid growth has not come without costs. Since 1992, more than 1300 people have been killed in 23 incidents of aviation accidents.
International sanctions make it impossible for Iranian aviation to purchase newer and safer equipment, Dadpay said. But sanctions are not entirely to blame. Pricing regimes put into place by the Iranian state ensure that aviation companies will never see enough profit to afford such purchases even if they were available, he explained.
Vahid Nowshirvani of the Persian Heritage Foundation responded to his presentation, remarking that a study of aviation in Iran is particularly important, given how technologically advanced the industry is. -Andrew Means
Session 3.1: The Clash of Paths
How do two countries with similar backgrounds, economies, and populations end up in two different places? That is the question that Esra Ceviker Gurakar, a PhD student from Marmara University in Turkey, tackled during an afternoon session at the Conference of Iran’s Economy on October 15. Studying Turkey and Iran, she asked, “Why have these countries chosen different institutional paths?”
Approaching the problem by looking at power structures and institutions, she reviewed previous research and created a new model of institutional development called “The Clash of Paths.” This model, which factors in how a country’s “path” can change when encountered by external factors, helps to explain why two countries with many similarities appear so different today.
One important factor that she highlighted in her talk was the relationship between the state and religious leaders. For example, prior to 1920 both countries’ parliaments had a significant number of clerics. Post-1920, however, the number of clerics a part of Turkey’s parliament decreased significantly while remaining steady in Iran.
Following her presentation Guity Nashat, one of the conference hosts, heaped praise upon the graduate student saying how excited she was that young scholars were studying this important issue. “We look forward to the finishing of this paper and seeing it appear in what will no doubt be an influential book,” Nashat said. -Andrew Means
Session 3.2: Rising and Reliant
Over the past decade, a wave of oil income almost doubled the Iranian middle class, which has increased from 25 to 43 of the total population. In many developing countries, a swelling middle class usually leads to booming productivity and entrepreneurship. But according to Amir Kermani, a PhD candidate at MIT, this hasn’t happened in Iran.
During his afternoon presentation at the Conference of Iran’s Economy on October 15, Kermani discussed preliminary findings from a study that tracked the growth of Iran’s middle class.
Using the country’s official household expenditure and income surveys, Kermani tracked middle class behavior in Iran by looking at periods of economic stagnation and growth between 1985 and 2007. In general, Iran’s middle class behaved similar to other developing countries—whenever the economy picked up, so did things like consumption, household size, and investment in child education.
Employment growth, however, responded differently than expected. Kermani said that oil exports have inhibited the role of the middle class as producers and entrepreneurs, as many people are too dependant on government services and employment. In Iran today, more middle class men and women are unemployed than there were in 1997, Kermani explained.
Following the presentation, the former governor of the Central Bank of Iran Hassanali Mehran agreed with this analysis, but expressed concern that Kermani’s study relies too heavily on the expenditure survey. He said paying more attention to savings and borrowing in Iran would be equally important to understanding what is keeping the middle class from becoming a major force in Iran.
Session 3.3: Voting Strategy
“Why study the 2005 Iranian presidential election? Because it’s safer,” joked Mohammad Mirhosseini of Northern Illinois University as he began his afternoon talk on voting behavior in Iran at the Conference of Iran’s Economy on October 15. Mirhosseini then laid out more substantial reasons why he was drawn to studying the 2005 Iranian presidential election—it was the first time the election went into the second round, there was a rich menu of options for voters, and there was fairly reliable data.
His main research question when approaching the 2005 election was: Did voters vote strategically?
To vote strategically means to not vote for your favorite candidate but another one. A person might do this for a variety of reasons, including they feel their favorite candidate doesn’t stand a chance and so they vote for another candidate they feel is more likely to win. A second best, of sorts.
Mirhosseini feels that this is what occurred in the 2005 Iranian election. A group of voters might not have felt like Ahmadinejad stood a chance and so they did not “waste” their vote on him instead voting for a candidate they favored less. When he made it to the second round, however, he had a higher chance of winning, provoking people who did not vote for him in the first round to switch their votes.
Mirhosseini’s paper, “Voting Behavior in Multiple Round Elections: An Analysis of Iran’s 2005 Presidential Election,” provides a unique look into the voting behavior of Iranians and creates an interesting framework for studying strategic voting behavior in multiple-round elections. -Andrew Means
Session 4: Remembering Mehdi Samii
Mehdi Samii was one Iran’s most prominent bankers of the 20th century. This summer, he died in Los Angeles at the age of 92.
To conclude the first day of sessions at the Conference on Iran’s Economy, former Iranian officials and scholars took time to put data models and economic theories aside to honor the memory of Samii.
The panel included Alinaghi Alikhani, former minister of economy of Iran, Hassanali Mehran, former governor of the central bank of Iran; Hashem Pesaran, of Cambridge University and the University of Southern California, and Djavad Salehi-Isfahani, from Virginia Tech.
“He was his own man,” said Hassanali Mehran, as he described Samii.
Samii helped establish Iran’s central bank in 1960, and later led it from 1963 to 1968 and again in 1970 and 1971. After leaving the Central Bank, he was appointed the director of the Agricultural Development Bank, where he stayed until 1979.
After telling stories about Samii, the panel turned its attention to discussing macroeconomic policymaking in the 1960s and 1970s, which many consider the golden age of economic growth in Iran. Questions from attendees ranged from import and export growth to consequences of 1979 revolution, among other issues.
OCTOBER 16, 2010
Session 5.1: Subsidy Effects on Fertility
Conventional wisdom about fertility trends usually goes something like this: The more income parents earn, the more expensive it is for them take time away from work to raise children. Since educated people tend to make more money, they generally have less children. In Iran, it happened a little different.
At a Saturday morning session of the Conference on Iran’s Economy on October 16, Mohammad Rahmati, a professor at the University of Texas at Austin, presented a paper written by Farid Farrokhi of Sharif University of Technology and Farhad Nili Central Bank of Iran & Sharif University of Technology (neither were present at the conference). It looked at fertility rates in relation to education and the growth of human capital in Iran over the past 50 years.
Rahmati pointed out how human capital, measured by the number of people getting educated, has risen steadily in Iran for the past 50 years. Fertility, however, remained stagnate from 1956 through the mid-1970 before suddenly declining sharply from seven births per women in 1979 to 1.9 in 2006.
To explain this delayed dip, the authors look to government subsidies given to families for children, which are historically financed by oil revenue.
While education subsidies accelerated the development of human capital, they argue, other government subsidies kept fertility high because it offered income without the typical increase in opportunity cost of childrearing. Eventually, population growth exceeded oil revenue, which makes up 61 percent of the government’s total revenue, spreading subsidies thin, boosting opportunity costs, forcing a decrease fertility rates.
Hassan Mohammadi, from Illinois State University, responded to the presentation by suggesting that there may have been more going on at a global level, such as increased urban migration, industrialization, and necessity for higher education. He also acknowledged policy implications of this paper for countries like South Korea that are trying to raise their fertility rates.
Session 5.2: The Baby Boom
As a child of the Iranian baby boom, Mohammad Rahmati of the University of Texas at Austin wanted to understand its root causes. Giving the second presentation of the “Fertility Dynamics In Iran” session at the Conference on Iran’s Economy, Rahmati presented research with Farid Farrokhi of Sharif University of Technology.
The Iranian baby boom coincided with the 1978 Iranian revolution. In the year prior to the revolution, 1.4 million babies were born. The year after the revolution, that number had skyrocketed to 2.4 million. Rahmati and Farrokhi attempted to create a model that would explain this behavior.
According to their model, Rahmati and Farrokhi believe that the value of having a child increased after the revolution. Rahmati seemed unsure as to why this might occur. They also believe that the decrease in minimum age requirements pushed many young women into marriage earlier than they might have otherwise and that these women were more likely to have children sooner into their marriage.
Hadi Salehi Esfahani of The University of Illinois at Urbana-Champaign responded to the paper with three main critiques:
First, in their model, the number of children in the family causes an increase in wage. However, an increase in wage causes a family to be more likely to have more children. This creates an increasing feedback loop.
Second, the decline in education and employment opportunities for women seems to be given too little weight in the model. Around the time of the revolution many universities were closed and women who would have otherwise gone to school now decided to marry, he said.
Finally, Esfahani believes that the paper could benefit from the sociological literature on marriage and childbearing. He joked about the model’s assumption that when a man decides to marry he automatically is married. “Things might have changed after the revolution, but in my day that wasn’t the case.” -Andrew Means
Session 6.1: Fertility Planning and Health Clinics
To better understand why fertility rates dropped suddenly in Iran over the past 30 years, Virginia Tech professors Ali Hashemi and Djavad Salehi-Isfahani investigated the rise of family planning services in the country.
After being suspended after the 1979 revolution, family planning services reemerged in health clinics around Iran in 1989.
In a morning session at the Conference on Iran’s Economy, hosted by the University of Chicago and the University of Illinois at Urbana-Champaign, Hashemi presented research that tracked women’s fertility choices in rural areas before and after the birth control methods were reintroduced in clinics.
By looking at the timing of the dip in fertility rates in Iran—it fell sharply from seven births per women in 1979 to 1.9 in 2006—some studies have claimed a direct correlation to the construction of clinics around the country.
Hashemi and Salehi-Isfahani took their analysis further, using the Iran Demographic and Health Survey of 2000 to follow 45,000 rural women (ages 15-49) before and after family planning services were made available and compare how long after marriage they started having children.
They found no change in the interval between marriage and first-birth, but when it came to second- and third-born children their study showed women were waiting longer after the clinics started providing family planning services.
Nobel laureate economist Gary Becker was in attendance and responded to the paper by asking about the location of the clinics and suggesting that authors also consider the education level of women surveyed, as higher-educated women may have been knowledge about and reason to use family planning services.
Session 6.2: Gender and the Labor Market
In Iran there is a wide gap between men and women in the labor force. Looking at Iranians aged 25 to 54, only 16.4 percent of women are in the labor force, compared to 92.1 percent of men. This exists despite the fact that women make up 60 percent of university graduates in recent years.
Hadi Salehi Esfahani of the University of Illinois at Urbana-Champaign presented research that looks at where women and men choose to work. Findings showed that education increases the likelihood of women participating in the labor force while no such connection exists for men.
Women who increase their education tend to move from homemaker to public sector worker, with a smaller increase in private sector employment as well. Men who become educated, however, typically move from self-employment and the private sector to the public sector, he explained at the Conference on Iran’s Economy.
Moving forward, increasing the participation of women in the workforce will not solely require increased access to education, but broader socioeconomic changes, the paper argues. -Andrew Means
Session 6.3: Women and Social Protest
During the 1979 revolution, women and men were united in protest throughout the streets of Iran. Thirty years later, women are protesting again, only this time it’s for gender equality.
Before breaking for lunch on October 16, the Conference on Iran’s Economy focused on the role of women in Iran. Moghadam Fatemeh from Hofstra University detailed gender history in the country and pointed to a rising feminist movement.
Modern judicial reforms between 1906 and 1979 sent mixed messages to the women of Iran, Fatemeh said. Her paper, “Women and Social Protest in the Islamic Republic of Iran,” describes how changes to the legal system have traded religious courts for secular courts, removing previous “clerical monopoly” on most aspects of dispute settlements, giving some autonomy to women. At the same time, however, clerical control over women’s personal status laws pertaining to marriage, divorce, and inheritance has only deepened since the 1979 revolution, Fatemeh argued.
A lively discussion broke out between Fatemeh and conference attendees after her presentation about whether post-revolutionary laws reinforced male ownership of female sexuality and other personal rights.
Session 7: Resource Allocation and Poverty Trends
In one of the final sessions of the Conference on Iran’s Economy, Gholamreza Keshavarz Haddad, a professor at Sharif University of Technology, discussed the individual labor participation and resource allocation in Iranian households.
Using data from Iran’s 2008 Households’ Expenditures Survey, his paper argues that education, hours worked, and wages are all bargaining factors between spouses.
Esfandiar Maasoumi, an economist at Emory University, followed with a lecture on how poverty in Iran declined between 2000 and 2004. His paper found that both “pure growth” and redistribution of income directly contributed to a striking reduction in poverty, especially among rural households.
