World-System (1960-2010): Iran as a Neoclassical Economy



It might seem paradoxical or even foolish to apply a Neoclassical Economic Model to Iran: Free markets for Products, Capital and Labor?  Exogenous Total Factor Productivity Growth (Technology)? Iran is generally considered a mixed, centrally planned economy with a large public sector (here). But what is easy to forget is the long period of attempted US domination prior to the Iranian Revolution in 1978-1979. The US, especially in the Kennedy administration, was trying to Modernize Iran and transform it into a model Capitalist System. They failed and brought on the Iranian Revolution and the current Anti-Modern Theocracy.




In any event, I always test a Neoclassical Economic Model as one of the competitor models when I estimate the best State Space model for a particular country. The causal model is presented above as a directed graph (see the Symbols defined in Notes below).



The graphic is basically a Kaya Model with exogenous Technological Change (TECH) and endogenous Capital Accumulation (K).

The first component of the KAYA TECH index (TECH1) for Iran is displayed at the beginning of the post. In the conventional Solow-Swan economic growth model autonomous technological change is given as an exponential function. For Iran, TECH1 is an historical component that peaks between 1970 and 1980, a TECH bubble that is popped by the  Iranian Revolution of 1978-1979. Although Iran's historical-economic development does not match the predictions of the  Neoclassical Economic Model, the application of the model is still insightful and is a competitor for explaining Iranian Economic History, at least prior to Iranian Revolution in 1978-1979 and as long as we accept the idea of Tech Bubbles such as the Dot-Com Bubble (an idea not admitted by Neoclassical Economics).  


Notes

The symbols are N = SP.POP.TOTL, L= SL.TLF.TOTL.IN, CO2 = EN.ATM.CO2.KT, T = Global Temperature, and Q = NY.GDP.MKTP.KD (for data definitions see the Boiler Plate).


The technological coefficients of the Kaya Model are c = CO2/E, e=ENEGY/Q, q=Q/N (or Q/L).


 
With the Kaya Technical Coefficients we can create a TECH index with Measurement Matrix displayed above. The first component, TECH1, is displayed at the beginning of this post of Iran.


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