Trade liberalization and economic growth: a case study of Iran

Abstract

We estimate the impact of trade liberalization and physical and human capital accumulation on Iran’s economic growth during the period 1959−2007. Using co-integration techniques and a vector error correction model, we find a unique long-run relationship between economic growth and its major determinants. These determinants include the physical and human capital stock, the labor force, real non-oil exports, and import tariffs. In addition, the short-term error correction dynamics analysis suggests that trade liberalization has a significant long run positive role in dynamic of growth. Our results support the view that the integration of the Iranian economy with the world economy is undoubtedly welfare improving.