Document Type : Research Paper

Authors

Abstract

Volatility of terms of trade has particular features in oil exporting countries. A large part of the variability of the terms of trade is associated with extreme movements in oil prices. In this paper we study Dutch Disease in Iranian economy with emphasis on impact of terms of trade on tradeable and non-tradeable investment by cointegration technique in period (1971-2003). First, we consider Corden and Neary theory about Dutch Disease. Second, we derived the investment function according present value criteria, accelerator principle and neoclassical theory of investment. This model included of GDP, CPI, rate of interest and terms of trade. Third, we estimated this model by Johnsen-Juselius cointegration technique. We find a long run relationship among these variables. Our results verified existence of Dutch Disease in Iranian economy.

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