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Thèse de doctorat/ PhD Thesis Citation APA:

Nazeman, H. (1979). Perspective of the long terme development of the Iranian economy (A quantitative analysis) (Unpublished doctoral dissertation).

Université libre de Bruxelles, Faculté des sciences sociales, politiques et économiques, Bruxelles.

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DEPARTMENT OF ECONOMICS

PERSPECTIVE OF THE LONG TERM DEVELOPMENT OF THE IRANIAN ECONOMY (A Ouantitative Analysis)

Hamid NAZEMAN A Dissertation Submitted for the Doctoral Denree in Economies

B74.S7E

c September 1979

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SECTION DES SCIENCES ECONOMIQUES

Approbation de Dissertation

Grade: Doctorat en Sciences Economiques Nome: Hamid NAZEMAN

Titre de Dissertation: Perspectives de Développement à Lonn Terme de 1' Economie Iranienne.

Directeur de Dissertation:

Professeur Victor GINSBURGH

Membres du Jury:

Professeur Colette DUPREZ

Professeur Paul HATRV

Professeur Paul KESTENS

Professeur Jean VIAELBRQECK

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I would 1ike to thank the members of my supervisory committee;

Professer Colette Duprez, Professer Victor Ginsburqh, Professer Paul Hatry, Professer Paul Kestens, and Professer Jean Waelbroeck;

as well as the others who hâve read earlier drafts of the présent dissertation and helped me in the course of writing it.

Professer Ginsburgh helped me not only by providing constructive comments, but also by encouraging me to improve the content and

organization of the dissertation.

Many teachers and colleagues hâve been helpful by discussing various topics of the study and providing useful comments. Among them I would like to thank Dr. Phillippe Cal lier, Dr. Steve Easton, Mr. Martin Gallagher, and Dr. Peter Kennedy from Simon Fraser

University, and Dr. Terry Heaps from the University of British Columbia.

I am grateful to the computing centres of the University of Brussels, Simon Fraser University, and Stanford'University for the use of their facilities.

Finally, I would like to give my gratitude to my family for their emotional and financial support during the course of my studies

Brussels, October r97'9 H. Nazeman

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TABLE OF CONTENTS

•page

Acknowledgements iii

Table of Contents iv

List of Tables viii

Introduction 1

PAHT I: CHASACTERISTICS OF THE IHANIAN ECONOMY 11

Chapter 1 Physical Setting and Economie Potential 12

1.1 Geography, Climate, and Agriculture 12

1.2 Natural Resources 15

1.3 Development Prospect 17

Chapter 2 Human Structure of tha Economy 19

2,1 Population 19

___________2.2 Urban-Rural Composition_________ ____________________ 21___

2.3 Manpower and Employment 27

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Chapter 3 Economie Growth and lacome Distribution 30

3.1 Growth of the National Output 30 3.2 Sectoral Structure of the Output 32 3.3 Régional Distribution of Output 45 3.4 Class Structure of Income and Wealth 49

PART II: OIL AND THE IHANIAN ECONOttï 53

Chapter 4 Historical Background of the Iranian Oil 54

4.1 Discovery of Oil and Pre-nationaliz-

ation Concessions 54

4.2 The Nationalization Move 57 4.3 Agreement of 1954 and "Cheap Oil Era" 62

4.4 Changes of the 1970s 67

Chapter 5 Oil and Iran*s Economie Development 71

5.1 Economie Impacts of Oil in

Pre-natioanlization Period 71 5.2 Oil Income and Development Planning 76 5.3 A Brief Evaluation of the Rôle of the

Oil Sector 97

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Chapter 6

PABT

Chapter 7

Chapter 8

Iranian Oil and Gas in World Energy Market

6.1 Major Trends in the World Energy Market 6.2 Demand Function for Iranian Oil

6.3 OPEC'S Behavioar and World Oil Prices

III: PLANNING FOR LONG-EON OPTIMAL GROWTH IN THE IRANIAN ECONOMI (1975-2000)

A Basic Model of Planning for Optimal Economie Growth

7.1 Optimal Growth and Pontyagin’s Maximum Principle

7.2 Analysis of Optimality in A Macro- Econofflic Mode!

7.3 Introduction ro a Planning Model for Iran

7.4 Solution àlgorithm of the Basic Model

The Macro System Emhodying the Planning Model

8.1 Estimation of the Production Function 8.2 Outlook for the Production Structure of

the Economy

8.3 Determination-of—the—Agg-regate Demand Function s

104

104 112 122

133

134

134

139 147 160

169

159 1^80

188“

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Chapter 9 Solution of the System

211

9.1 Settinq up

Solution the System for a Numerical

211 9.2 Alternative

Solution Scénarios and System

Z17

Summary and Conclusions

230

àppendix A

Text of the Coded Computer Protjramme

for the Planning aodel 233

Appendix B-1

Optimal Path of the aajor Variables

of the System (Scénario 1) 235

Appendix B-2

Optimal Path of the Sajor Variables of the System (Scénario II)

Appendix B-3

Optimal Path of the Major Variables

of the System (Scénario III) 241

Bibliography 243

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LIST OF TABLES

Page Table

(2-1) Population of Iran and its Age Composition 20

(2-2) Orban and Rural Population 22

(2-3) Classification of Iran’s Cities 23 (2-4) Classification of Iran’s villages 26 (2-5) Activity Structure of tha Iranien Population 28 (3-1) Iran’s GNP and its Growth Trend 31 (3-2) Value Added in Varions Sectors, Constant Prices 33 (3-3) Value Added in Varions Sectors, Current Prices 33 (3-4) Composition of Industrial Value Added 33 (3-5) Composition of the Services Sector 43 (3-6) Régional Per Capita Non-Oil GDP 47 (3-7) Distribution of Consumption Expenditure 49 (5-1) Contribution of the Iranien Oil Industry 72

to the Economy of Iran and Britain (5-2) Iran's Oil Export and Oil Income

During 1911-1951 74

(5-3) Sources and Uses of Funds ia the First Plan 78 (5-4) Sources and Uses of Funds in the Second Plan 81 (5-5) Sorces and Uses of Funds in the Third Plan 84 (5-6) Sources and Uses of Funds in the Fourth Plan 87 (5-7) Sectoral Investments During the Fourth Plan 88 (5-8) Fifth Plan’s Projected Investments in Public and 93

Private Sectors

(6-1) World Discovered Réserves of Oil and Gas 106 (6-2) World Ultimate Crude Oil Recovery__________________________ 107

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(6-3) World Energy Sources at Selactad

Points of Time 109

(6-4) Geographical Distribution of Iran’s

Crude Oil Market 113

(6-5) Gross National Product Of Major Oil Importers

Major Oil Importers 114

(6-6) Production and Expert of Iranien Oil 115

(6-7) Price of Iranien Crude Oil 116

(6-8) OPEC Export of Crude Oil and its 123 Average Postad Price

(6-9) Projected Price of Crude oil for

the 1975-1985 Period 132

Alternative Régression Results for Logarithmic

Production Eunction 178

(8-2) Projected Population Figuras (1975-2000) 221 /3_3\ Alternative Scénarios for the Target Level of

^ ^ Per Capita Non-Oil GNP of Iran in the Year 2000 222 (9-1) Optimal Path of the Major Variables of

^ the System (1975-2000) 225

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Iran, the home of Persian civilization, daims centuries of organized statehood and thousands of years of cultural background. In the course of her long history Iran has experienced periods of power and stability marked with progress and glory in the arts and sciences, but has also suffered from numerous attacks and invasions folllowed by periods of décliné and instability. Superficially touched by the industrial révolution, Iran at the beginning of the century was a fairly primitive and isolated State

barely recognizable as an économie entity.

The constitutional révolution of 1906 established a fragile democracy that was followed by periods of political crisis and instability, and also World Rar I which blocked the road to économie progress. &fter World War I a powerful central autocracy emerged which overpowered the régional authorities and restored national stability. The émergence of this post-constitutional autocracy weakened the institutions of Iran's democracy, but at the same time it enabled Iran to make some strides in pursuing économie progress and moving towards the modem world.

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àlthouqh rhe discovery of oil early in the century had opened the door for utilization of the country’s natural resources in économie growth, un justifiable financial relationships with foreign companies did not let the resource industries serve the development of the Iranien economy to a promising extent. Iran's unwilling involvement in World War II was another factor that interrupted the country*s initial move towards modem économie activities,

After World War II the nationalistic movement struggled for the nationalization of the petroleum industries. The legal nationalization move was opposed by the multinational oil companies and prompted pressures from the western governments, which resulted in a compromise settlement assuring western interests in Iran.

Consequently, the volume of oil production expanded and the growing revenues from the oil exports became the major source of finance for the government's growing expenditures

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Iran’s économie development during the last two décades can be characterized by features typical of a

"potentially wealthy" group of developing countries. While the increase of revenues from the resource sector has resulted in a high rate of growth in expenditures at the macro level, there has been no genuine achievement in the development of a self-sufficient productive structure for the non-oil economy. Nor has there been a significant success in the création of a considérable économie linJeagè between the oil sector and the rest of the economy,

at the présent stage of its development the Iranien economy hosts two distinctive sectors: a large primitive sector maxnly dépendent on a "subsistance agriculture" and suffering from the structural socio-economic problems of underdevelopment: and a "semi-urbanized" consumer sector characterized by a transplant western lifestyle, and mainly dépendent on "assembly plant" manufacturing and overinflated tertiary activities.

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The unhealthy structure of the Iranien economy, attributable to "unbalanced growth” and "un justifiable distribution" of income and wealth# has created severe économie and political difficulties, bringing the country to a turning point in its recent history. ht this point in time, the future of Iranien society directly dépends on the extent of its ability to formulate a national économie strategy for achieving a self-adjusting socio-economic System, capable of creating and maintaining harmony and balance across the economy. Evaluation of the feasibility of such a national économie strategy and analysis of the long-run trajectory of its outcome is the main issue addressed in this study, Therefore, the purpose of the study is to summarize the achievements and problems of Iran's économie development, and analyze the behaviour of the economy, using empirically testable guantitative methods, and presenting a logical basis for the projection and planning of the future trends of development at the macro level

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The study consists of three parts, The first part summarizes the main characteristics o£ the economy, and delineates the recent trends of its growth. In this part we présent the natural setting and human structure of the Iranien economy and report the available data on its performance and growth. We glance at the geographical conditions and resource potentiels of the economy, and briefly présent the composition and growth of population in urban and rural communities. The growth path of the economy at the macro level and also at the level of the major économie sectors is presented and briefly analysed.

Then there follows a brief analysis of income distribution by régions and social classes.

The second part of the study deals witth the oil sector and its rôle in Iran’s économie development. In this part we présent the highlights of the historical background of the oil industry and briefly expose the

"neo-colonial" behaviour of the multinational oil companies

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in Iran, We demonstrate the financial contribution of oil revenues to development plans and examine the impact of the oil sector on the rest of the economy, He also analyse the major trends in the world energy market, and introduce quantitative behavioural functions for the Iranien Petroleum industry. On the basis of the expected developments in the world energy market, we also examine the liklihood of a continuons appréciation in the value of the world*s petroleum resources.

Since the first two parts of this the study constitute only an introductory overview of the issues relevant to the Iranien economy, by définition, these parts of the study cannot convey an intensive analytical view on such a wide range of issues.

The third part of the study involves the analysis of a consistent planning System for optimal long-run growth of the economy, in this part we pursue the idea of the optimal growth in the Iranien economy and introduce an

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aggregate planning model for a 25 year period (i.e., 1975-2000). The model is designed to détermine the long-run path of national investment and consumption consistent with the optimal growth of the non-oil output of the economy, Towards this end a given petroleum resource is to be utilized during the plan to finance the investment bill consistent uith the macro target of the System (i.e., per capita non-oil GNP),

The planning model in its basic form is presented as an example of optimal control problem. By satisfying the optimality conditions of its corresponding mathematical model, the solution algorithm for the basic planning model is outlined. The basic model, then, is expanded to constitute a comprehensive économie System that embodies ail the relevant behavioural relationships of the economy.

In the context of this integrated System, provisions are made for the création of a modem high-technology sector to be initiated by the government in pursuance of the long-run target of économie self-sufficiency.

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our assumptions regarding the création of a high-technology modem sector, along with modernization of the conventional non-oil sector, would require reversing the recent trend of superficial growth featured by the mushrooming of the tertiary sector and "assembly-plant"

industrieso It would necessitate massive investments in a' sériés of capital-intensive activities such as modem agriculture, basic manufacturing and a broad spectrum of socio-economic infrastructure, ail essential for achieving the goal of a sustainable non-oil économie prosperity.

Therefore in formulating the application of the model, the above mentioned strategie provisions are accommodated in the model by suitable adjustments to the production functions and other behavioural relationships cf the System.

By introducing alternative macro-scenarios for the target levels of the GNP and the petroleum reserves, the model is tested and a numerical solution is reported.

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Although the analytical tnethodology of the présent study enables us to gain a relatively clear perspective on the future course of devlopment in a rapidly changing economy, it must be noted that a guantitativs analysis of the purely économie variables, by définition, is not expected to produce a comprehensive picture of the complex social evolutionary process in the course of économie development. Therefore, the conclusions of the présent study, in projecting a high level of économie prosperity for Iran, comparable to that of the world's most prospérons économies, by the end of the century, is definitely subject to a whole sériés of socio-economic accomplishments in the course of long-run national planning. Such a performance, if realized, would virtually mean "sgueezing the time" and short cutting by décades a century long path of development O

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PART ONE

CHARACTERISTICS OF THE IRANIAN ECONOMÏ AND ITS DEVELOPMENT

In this part we shall review the main characteristics of the Iranien economy. Ne shall consider in turn the geographical setting, the human structure of the economy, the statistical analysis of growth in the national and sectoral levels, and the distribution of income by the régions and the social classes. This part serves as an introduction to the economy of Iran with a view to presenting the objective économie data without a detailed examination of the socio-economic environment or relevant policy analysis.

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Chapter 1

Physical Setting and Economie Potential

1,1 Geography, Climate, and Agriculture

Iran's territory of 1,648,125 square kilometers consiste mostly of dry and semi-dry climatic régions,

Two major ranges of mountains, the Alborz ring in the north and the Zagros ring in the west, surround the inner parts of Iran and cause the lack of sufficient précipitation in the central deserts, These ranges of mountains actually mark the boundary of two distinct types of climate and agriculture.

About three guarters of Iran's territory, an area of 1.200.000 square kilometers, displays various types of dry climate, i,e, dry desert and dry Coastal climate or warm semi-desert and cold semi-desert climate. An area of about 400.000 square kilometers has a typical Mediterranean climate. There is also an area of about 50,000 square kilometers with a cold mountainous climate. The general classification of landscape in the Iranien territory can be summarized as the f ollowing (1) :

('1) Iran Statistics Centre, ïearbook of V97T. p. 261, cited from Ministry of Agriculture, 1966 Data.

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Farm land (under cultivation Pastures

Forests

Rivers and Inland Lakes area of Urban Districts Cultivatable

Oneultivatable

Total (1)

or fallow) 9.9 percent 6.2 percent 11.5 percent

0,7 percent 2.1 percent 20.0 percent 49.6 percent

100.0 percent

Geographically there is a great contrast between the north and the south, Hhere as there is extensive dry-farming (i.e. farming with no irrigation other than rain) in the north and north «est, Such dry-farming is more subject to failure from insufficient rainfall in the south and south east. Generally in many parts of the country agriculture is subject to the capricious nature of the climate. Drought, due to insufficient winter or spring rain causes partial or total crop failures, Floods after sudden storms destroy irrigation channels and Qanats,

In parts of the central plateau the soil is salty and the water too saline to be used for irrigation. On the

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Southern and scuth eastern borders of the central desert there is a marked tendency for the desert to encroach on the surrounding area. The need for the prévention of climatic soil érosion is urgent (however, a suitable programme would be both costly and difficult to implement).

Altogether, agricultural productivity is regulated by the seasonal and spatial distribution of the rainfall.

Cereals, including aheat, barley, and rice are the staple crops, Hheat is grown in every area of the country except along the Caspian coast where its place is taken by rice.

In recent years record harvests of 5.5 million tons of wheat, 1.5 million tons of rice, and 1.4 million tons of barley hâve been achieved. Other field crops include corn, potatoes, peas, beans, and lentils. Onions, cabbages, cucumbers, and melons are commonly grown. Sugar beet, sugar cane, tea, cotton and tobacco are also among the major agricultural crops.

Iran produces a great variety of very fine fruits, some of which like apricots, cherries, peaches, and plums are known to hâve originated in Iran. Total fruit production is estimated at about 1 million tons annually, which includes more 150,000 tons of citrus fruits and about 300,000 tons of dates. Dried apricots and raisins are among-“the -major exportaitems'; Consi-dering the geologicàl

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and climatic factors, one can generally conclude that Iran could not rely on agriculture and agro-industry as a prime économie activity or as a promising motor of growth and development. &t the same time, however, expansion and improvement of traditional dry-farming in the green belts of the north and north west, along with promotion of the intensive irrigated agriculture in the riversides and under the dams, can help the ccuntry to move toward some kind of

self sufficiency in food and agricultural products.

1,2 Naturel Resources

In contrast to the climatic disadvantages with respect to agriculture Iran is blessed with abundant resources of the energy and minerais essentiel for industrial development, Proven petroleum reserves in Southern Iran and in Iran’s shelf under the Persian Gulf waters are estimated to be approximately 65 billion barrels.

Exploration has proved the existence of petroleum reserves in the central and northern parts of the country as well.

These fields are not, as yet, commercially utilized and there is no figure available as to the volume of proven reserves in these areas, Iran has also very large reserves of naturel gas, mostly discovered in the Southern fields.

Estimated reserves are 300-350 trillion cubic feet.

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Copper is one of the most abundant minerais. It bas been discovered in the south eastern parts of the central desert near Kerman, with estimated reserves of 1000 million tons. Other minerai reserves include iron ore, zinc, lead, chromite, manganèse, nickel, cobalt, tungsten, silver and gold.

Iran*s forests of more than 180,000 square kilometers, consist mainly of oak, ash, elm, maple, pine, walnut, box cypress, beech and honey locust. Black walnut trees are found throughout the country, and both almond and pistacho trees are extensively cultivated.

Iran has also fairly large amounts of marine resources and fish supplies in its territorial waters (the Persian Gulf and the Caspian Sea). The Caspian Sea contains sturgeon, salmon, white fish, perch and many other kinds of fish. Iran's annual catch of fish from the Caspian is about 20-30 thousand tons, while the Soviets may catch up to 0,5 million tons. Fresh water streams of the Mborz mountains are the spawning source for caviar sturgeon. The production of caviar is over 200 tons a year, and it is mainly exported. The Persian Gulf is also a great fisheries resource which contains Indian salmon, rock cod, mackerel, sardine, and many other varieties of fish and shr-i-mp-ï-—Ho wever> the Iranian—fisheries industry— in—the

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Gulf is not sufficiently developed and the Iranian catch is relatively small.

according to the Iranian laws and régulations ail the naturel resources i.e. oil, gas, forests, mines, and water resources are nationalized and owned by the Government.

This fact reveals the important rôle of public decision making in the Iranian economy and the necessity of con­

sistent national économie planning,

1.3 Development Prospect

À guick look at the Iranian économie setting, suggests that Iran is one of the few fortunate countries in the third World, that not only is blessed with immense resources of energy and minerais, but also enjoys a suitable density of population, and a rich cultural héritage, that in many ways, offer a more fovourable prospect for économie progess, as compared to the other developing countries.

Future of the Iranian économie development, to a large extent, dépends on efficient utilization of the country's naturel resources in création of a self-sufficienr industrial economy. In this process, Iran shares some of

‘the fundamental problems bf ündefdevelopment with the other

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members of the less developed world. Heakness of the socio-economic infrastructure is one of the major problems for the absorption of capital and expansion of the national productive capacity, Therefore, a genuine effort for development of the economy, is bound to give first-class priority to the investment in socio-economic infrastructure, Shortage of skilled manpower, and inadequacy of technological know-how is another fundamental problem in the course of économie growth, which requires large investments in human capital, as well as, in home-based scientific and technological research.

Beside the problems relating to the physical (i.e.

material) aspects of the économie development, there is the very crutial issue of cultural balance, that has to be considered in the course of industrialization and development. In this field, so far, the Iranian expérience of adopting some "transplant institutions" from the western world, has created a large gap between the traditional values of the Iranian society and a superficially borrowed setting of the western institutions.

The social problems arising from such a cultural dualism remains as the major threat for Iran*s future development.

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HÜMAN STRDCTORE OF THE ECONOMÏ

During the past décades there has been considérable change in the human resources of Iran i.e, change in the size of the population, its distribution between rural and urban areas, its activity rate and lifestyle.

2.1 Population

Prior to 1956 there was no national census in Iran.

The only official population records were the erratic statistics of the Civil Registration Office which started operations in 1928, There were some partial head counts in the major urban areas during World war II, but they did not cover the entire population.(2)

The first National Census was held in 1956 and has been followed by a census in both 1966 and 1976.(3) According to the census data Iran*s population is a young and rapidly growing population.

(2) Public Statisrics Dept., National and Provincial Statistics of the First Census of Iran; Nov. 1956.

(3) Iran Statistics Centre, National Census of Population and Housing; Nov. 1966.

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Table (2-1)

Population of Iran and its Age Composition

Tear | Total 1 Under 15 years | 15-64 years | 65 and over 1

1

Population |

(thousand) | percent | percent | percent 1956 i 18,955 I

1

42.2 1 53.8 i 4.0

1966 i 25,789 1 46. 1 i 50.1 1 3. 1 1976 i 33,592 !

1

44.8 1 52.5 j 2.7

&s is shown in the above table, the total population bas been growing rapidly during the last two décades, This reflects both a rise in the birth rate and a décliné in the death rate. The estimated annual rate of population growth of 1.5 percent, in the pre-World War II period, rose to a rate of 2.2 percent per annum in the 1941-56 period. This was followed by an average annual growth of 2.9 percent for the 1956-66 period. (4) Finally the recent census shows that this rate has declined in the 1966-76 period. The last estimate is about 2.71 percent per annum,

Although the last census indicated a slight décliné in the rate of growth of population, we should note that 2.7 percent annual growth is still a relatively high rate of population growth.

"(4) Iran "Statistics Centre, îe'arbook 1971, p, 35

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This high rate of growth is mainly due to a very high rate of birth and fertility. The estimated birth rate is 48 per thousand and the fertitly rate is about 235 per thousand for females in the 15-44 âge group,

The recent décliné in population growth may be related to the growing use of contraceptives in the urban areas.

In the rural areas however, illiteracy and ignorance, but not religions influence, stand in the way of rapid progress in faimly planning.

2,2 Urban - Rural Composition

The Iranien economy can be regarded as a dualistic economy. The urban and rural communities are not only different in terms of their économie and occupational bases, but they constitute two distinct communities in terms of cultural and social values as well. While rural inhabitants are mostly engaged in agriculture, the urban population is mainly employed in manufacturing and services.

àlthough the statistical definintion of the city versus the village does not provide a rigorous basis for distinguishing between urban and rural communities, for practical purposes, ail the communities with a population of 5,000 or more may be regarded as urban centres.

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Accordingly we can enumerate the total urban and rural populations of Iran as follows (5) :

Table (2-2)

Drban and Rural Population (Thousand)

ïear 1 *

1 Urban 1 Rural 1 Total 1956 1 5, 954 1 13,001 1 18,955 1966 l 9,795 1 15,994 1 25,789 1976 1 15,754 1 17,908

“ 1 '

1 33,662

as is seen in the above table Iran's urban population is grotfing rapidly as compared to the rural population.

The estimated annual rate of growth of the urban population is around 5 percent, while the rate of growth of the rural population is about 2 percent per year. This situation is due to both migration of rural population into the urban centres and the growth of the large villages such that they hâve been reclassified as towns. There were 298 urban centres in 1972 which could be classified in different groups(6) as presented in Table{ 2-3)

(5) Iran Statistics centre, ïearbook 1971, p. 34 Also provisional Results of the 1976 National Census.

(6) Plan Organization, Fifth Development Plan

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Table (2-3)

Classification of Iran*s Cities

Groups of Orban Centres | Number 1 Population 1 1000s

(Ratio to 1 Orban 1 pop.

1

Rural towns (2-25 thousand) | 225

1

2,267 1 17.1

Small cities (25-100 thousand) | 53 I 2,666 1

1 20.1 Mid Size cities (100-250 1

thousand) | 13 1 1,890 1 1

1 14.3 1

Major Cities (250-1000 |

thousand) | 6 1 2,622 1 1

1 19.8 Metropolitan Tehran | 1 1 3,802

1

1 28.7 1

Total 1 298 1 13,247

1

1 100.

In the 1976 census, there were 365 urban centres with a total population of 15,721,000t. Of this population 4,496,000 were inhabitants of Tehran, according to the above table 62.8 percent of the total urban population is concentrated in Tehran and 19 large cities, These cities were the target of a mass migration from the rural areas during the last two décades and this rapid urbanization is continuing,

The reasons for these population movements are hard to establish. In the 19 50s and 1960s it is liJcely that decisions to move were based, to a large extent, on the

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"push” factors, such as tachnological unemployment arising from a partly mechanizing agriculture, and the effects of a Land Beform programme of 1962-66 which displaced some hired Seasonal workers, tenant farmers, share-croppers, and non-agricultural workers. Recent migration to the urban areas, however, appears to be more influenced by the "pull”

factors of économie boom in the oil wealthy urban community. The widening gap between the urban and rural areas has led to a belief that cities offer immédiate higher earnings. The concentration of manufacturing industries in major cities and the explosive expansion of construction projects around the major urban centers, is bringing tens of thousands of workers from the villages and small cities. This rapid growth of popultion in Tehran and the major cities has caused a severe shortage of housing and urban services in these urban centers as a conseguence.

Dsspite the substantiel improvements in the financial status of the urban community, the unbalanced growth of the large cities acts as an obstacle to the improvement of the real standards of living (i.e. human welfare). Besides the direct socio-economic complications of fast unbalanced urbanization, the lack of a compétitive market or of efficient planning in the housing industry, has created a highly spéculative urban land market. Such phenomena in an inflationary growing ecohomÿ hâve rësulted in sudden

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discrète changes in the cost of living in the major urban areas. Despite ail these difficulties and shortages, however, the rural-urban migration continues to be an essential factor in securing the necessary supply of labour

for the industrial development.

Now, if we look at the rural community, we find that the rural sector is suffering from the lack of a sufficient démographie concentration, according to the last census of 1966, Iran's rural population is scattered in more than 66,438 villages, where the majority of the population (about 66 percent) are inhabitants of the small villages with a population of 100-1000 people.

The distribution of the rural population is summarized in the following table:

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Table (2-4)

Classification of Iran's Villages

Groups of Rural Centres

1 Number 1

1 i

Population (thousands)

(Ratio to 1 (rural population)

population of \ 1 ( (

25 or less i 12,966 1 149 ( 1.0 percent)

population of 1 1 (

25-49 J 7,884 1 286 1 1.9 1

population of l 1 ( (

50-99 1 10,528 1 766 ( 5.0 (

population of 1 1 1 (

100-249 1 16,936 1 2,781 ( 18.1 (

population of 1 1 1 )

250-499 1 10,415 1 3,660 ( 23.9 (

population of 1 1 ( 1

500-999 1 5,314 1 3,636 ) 23.7 (

population of 1 1 ( 1

1000-2499 1 2,087 1 3,011 ) 19.7 (

population of 1 1 1 )

2500-5000 1 308 1 1,025 ( 6.7 (

Source: prepared by the author on the basis of data from Iran Statistics Centre, National Census of 1966.

In most of the small villages there was no significant production in économie terms and productivity of both land and labour was very low. This rural poverty, in the absence of an extensive transportation facility essential for économie interaction in the event of such scattered villages, has created serions difficulites in the implementaion of Iran's rural development programs.

Finally, it is planned to provide neighbouring villages with régional service centers in order to deliver the social, educational and health services for the small iso-l-a-ted—Gommun-it-ies, - The expansion of such moves to

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encourage social and économie cohésion between these scattered communities, seems to be an essential step in planning for rural development.

2,3. Manpower and Employment:

Iran*s active population approximates 30 percent of the total population. This percentage when compared to the average world ratio of 41 percent seems to be rather low.

The main reason for this différence is the traditional non-active rôle of the female population in Iran.

Iran* s rate of activity for both sexes in the Iranien labor force (8) , can be compared with the world average ratios as follows:(9)

1 Male activity Female activity 1 Total Ratio Iran |

1 Horld 1 Average|

48.8 percent 1

1 13.8 percent 1

1 29.5 percent 54.1 percent

a 1

28.5 percent 1 1 1

41.3 percent

The main reason for the variance of the male population*s activity ratio from the world average seems to be the âge structure of the Iranien population (a young

(8) Plan Orqanization, Fifth Plan*s Report, Tehran, 1972, p. 103

"(9)“Ir~aïr~StXt'istics “Cën'tre, ïearbôôlc 19717.... P*~ 7Î2', cited from International Labour Organization ïearbook.

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population with a large proportion of school âge children).

In the case of the female population, as mentioned above, most Iranian vromen are engaged in houselceeping and are not counted as formally active in the labour market.

Expansion of the base of the population pyramid (i.e, faster growth of younger population) has caused the activity ratios to décliné during the past years in Iran.

The follOHing table shows the composition of population and activity ratios at varions points in time: (10)

Table (2-5)

activity Structure of the Iranian Population

Population in thousands 1956 1966 19 72 1 1 976 1 Total Population 18,955 25,789 31,169 1 33,6621 Population over ten years 12,784 17,000 20,879 1

1 22,2001

of âge 1

1 1

1 active Population 6.067 7,842 9,197 1

1 9,7331 Ratio of activity for total 32% 30.4% 29.5% 1 28.9% i

population 1

1 1

Ratio of activity for 1

1 1 population over ten 47.4» 46. 1% 44.1% 1 43.8% {

years of âge 1 1

(10) Iran, Statistics Centre, ïearbook 1971, pp. 50-59.

Iran, Plan Organization, Fifth Plan*s Report, Tehran, 1971, pp. 107, 108.

aiso, the 1976 Census Results.

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Early estimâtes of the fifth plan, indicated that the active population of 1977 would be 10.6 million, a rise of 1.4 million during the 5 year plan period. Compared to the 1.8 million employment opportunities in the plan this indicates a potential labour shortage of 400,000 in the economy.

It has to be mentioned that the expected labour shortage is predominantly in the medium level skilled labour market, plus a typical continuons shortage of highly skilled and professional workers. The unskilled and underskilled labour, in contrast, has always been in excess supply. For many years industrial growth, although amongst the fflost rapid in the world, was not able to create sufficient demand for the mass of unskilled labour supply.

This group is principally composed of excess rural workers, school "drop outs" and some underskilled young graduâtes.

h large increase in public expenditures, however,

mainly due to the vast amount of oil income, has launched an expansion in the service industry, both public and private, and this, along with large investments in construction and manufacturing, has created tremendous employment opportunities for ail ranks of skill. For the time being, these developments hâve ensured the absorbtion of most of the labour supply.

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Chapter 3

ECONOMIC GROWTH AND INCOME DISTRIBUTION

3,1 Growth of the National Output

The Iranian economy more than doubled during the 1960s, experiencing a remarkably high rate of growth of more than 8 percent per year in real terms. Not surprisingly with larger contributions from the Resource Sectors the economy has just doubled again during the 1970-76 period.

This establishes a record rate of growth of more than 13 percent per year in real terms. Mith a population growth rate of about 3 percent, this means that there has been a per capita income increase of nearly 5 percent a year during the sixties and more than 10 percent a year during the seventies. A more remarkable fact is that these high rates of growth hâve been achieved in the absence of appréciable rates of inflation for most of the sixities as well as the early seventies, The appearance of high rate inflation in the Iranian economy has only occured recently accompanying the Western World’s general inflation.

Iran*s GNP level and the approximate annual rate of growth at current and constant prices for the 1959-75 period is shown in the following table:

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Table (3-1)

Iran*s GNP and its Growth Trend (Billion Riais)

1 Current Prices General Price Deflator

1972=100

Constant 1972 Pricesi 1 ,

1 1

GNP 1 1

Rate of growth %

GNP Rate of i growth 1959 1 283.9 I - - 71.3 398.4 — - - - 1

1960 1 309.1 1 8.9 73.6 419.9 5.4 1

1961 1 319.6 1 3.4 73.7 433.4 3.2 1

1962 1 340.4 1 6.5 74.9 454.4 4.8 1

1963 1 360.3 1 5.8 75.3 478.5 5.3 1

1964 i 405.1 1 12.4 77.2 525. 1 9.7 1

1965 1 456.4 1 12.7 78.0 585.5 11.5 1

1966 503.6 1 10.3 78.3 643.2 9.8 1

1967 J 556.5 1 10.5 77.6 716.7 11.4 1

1968 1 629.3 1 13. 1 79.2 794.9 10.9 1

1969 1 704.2 1 11.9 81.3 865.7 8.9 1

1970 1 798.2 1 13.3 88.3 957. 9 10.6 1 1971 1 961.5 1 20.5 91.0 1,056.8 10.3 1 1972 1 1,227.7 1 27.6 100.0 1,227.7 16.2 1 1973 1 1,824.7 1 48.6 131.4 1,388.3 13.1 1 1974 1 3,150.8 1 69.9 200. 9 1,568.6 13.0 1 1975 1 3,624.7 1 15.0 206. 1 1,758.6 9.6 1

Source: Complied by the author on the basis of data from: Plan Organization

ks the above table shows the rate of growth both in

constant and current prices accelerated in the late sixties and the economy has continued to grow at a higher rate through the seventies. Since 1972, along with the oil price hike, the price level has increased sharply but at the same time the real rate of growth remained remarkably high for 1972, 73 and 74. It seems, however, that there has been a slight slow down in the growth rate of 1975 following the general stagnation of the western économies.

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3,2 Sectoral Structure of Output

During the above period, the national output has not expanded quite evenly within the varions sectors of the economy, The primary sector (agricultural activities) has lagged somewhat behind the other sectors, while in current prices the oil sector has grown markedly faster than the rest of the economy. The secondary sector, (defined as Industries and Mines in Iran’s National àccounting) which includes mining, manufacturing, construction, water and power, has enjoyed a high rate of growth throughout the sam pie period, The tertiary sector (services) has also had a high rate of growth, probably higher than an optimal rate for this sector of the economy.

In the following tables we show the value added in varions sectors of the economy and also their share in the G,D,P,, both in constant prices and current prices, at

varions points in tima,{11)

: Central Bank of Iran, (11) GDP and Sector*s Value Added

and Plan Organiza-ti-on-,---

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Table (3-2)

Values Added in Varicus Sectors and Their Share in GDP (In Billion Riais, 1972 Constant Prices)

1 1959 1 1965 1 1970 1975 agriculture i 132.24 1 153.32 1 197.93 241.32

% in GDP 1 (33.1) 1 (25.4) 1 (19.5) (14.3)

Industries i 63.59 1 1 1 1.66 1 188.21 423.66

% in GDP 1 (15.9) 1 (18.5) 1 (18.5) (25.0)

Services i 136.56 1 204.01 1 348.86 818.31

% in GDP 1 (34.1) 1 (33.8) 1 (34.4) (48.3)

Oil i 67.46 1 134,87 1 279.88 209.19

% in GDP 1 (16.9) 1 (22.3) (27.6) (12.4)

Gross Dômestic 1 1 1

Product 1 399.85 1 603.86 1 1,014.88 1 ,692.48

Table (3-3)

Value Added in Varions Sectors and Their Share in GDP (In Billion Riais, Current Prices)

1 1959 1965 ( 1970 1975

agriculture 1 85.40 1 120.00 1 160.60 333.90

% in GDP 1 (29.9) 1 (25.7) 1 (21.6) (9.3)

Industries i 45.30 1 86.10 1 168.10 683.20

% in GDP 1 (15.9) 1 (18.4) 1 (22.6) (19.1)

Services i 107.73 1 178.29 1 314.74 1,226.00

% in GDP ! (37.7) 1 (38.2) 1 (42.2) (34.2)

oil i 47.10 1 82.70 1 183.30 1,337.00

% in GDP 1 (16.5) 1 (17.7) 1 (24.6) (37.4)

Gross Dômestic 1 1 1

Product 1 285.53 1 467.09 1 743.44 3,580.10

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&s we démonstrated in the above tables, agriculture had a smaller portion of GDP in 1975 than in 1959 both in constant and current prices. Industries and mines grew relatively larger and produced a greater proportion of GDP in 1975 than in 1959. The largest proportion of GDP, however, is produced in the Services sector. Bhile the oil sector has grown very large in current prices it has acutally had a négative growth after 1970 in terms of constant prices, The oil and service sectors together produced, in 1959, about 50 percent of GDP, while in 1975 these two sectors produced more than 60 percent of GDP in constant prices. In terms of current prices these two sectors produced more than 70 percent of GDP in 1975.

The relatively poor performance of Iran's agriculture in comparison with the other sectors, has diminished the over-all économie development of the country. The relative shortcoming in the expansion of agricultural output has coincided with a sizable increase in the demand fer food and agricultural products. This increase has been induced . by large amounts of value added in industry and services, mainly originating from the large increase in oil income.

The resuit has been a sharp rise in the food stuff component of the consumer price index and a rapid increase in the imports of agricultural commodities. At the same

" time this relative failuré“ih agri^rtural“de"velopment has

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induced a significant ’'push" factor in migration of surplus rural labour to the major urban centres.

The relatively small growth of agricultural output during the above mentioned period was the resuit of expanding the existing productive capacity without making substantial changes in the pattern of agricultural production. The expansion vas primarily the resuit of increases in the area under cultivation permitted by irrigation projects, gréater mechanization, and some improvements in the farming methods. In spite of efforts made throughout the period, there is still inadéquate progress towards an extensive development of the agricultural sector. The need remains to expand the supply of Products and satisfy a rapidly grovring domestic damand.

One may conclude that in the above period, there was too much emphasis on industrial development and hence, too little was done in the promotion of agriculture. The government*s programs in the rural sector mainly concentrated on the implémentation of "land reform” in the sixties. Thereafter the emphasis was on encouragement of some social development and welfare projects in the long neglected rural section of Iranien society. After the initiation of these structural changes there is now an urgent—need for a''comprehensxve~a'gricultural programme; a

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programme to coordinate the activities of various agencies and provide necessary inducements for balanced agricultural growth within a consistent national planning framework.

In contrast to agriculture the industrial sector of the economy (i.e. industries and mines) has had a very high rate of growth and value added in this sector rose from 63.6 billion Riais in 1959 to 188.2 billion Riais in 1970 in constant prices. This constituted a growth rate of more than 11 percent per year, a rate higher than the average growth rate of GNP in that period. In the period 1970-75 industrial output more than doubled and the total value added in this sector in 1975 marked a figure over 42 billion Riais ($6.2 billion) in constant 1958 prices. This constitûtes an average annual growth of about 18 percent in real terms. Continuation of such growth in the industrial sector can make Iran succeed in its efforts at industialization. Although Neo-classical Théoreticians still specultate on the virtue of international division of labour, there seems to be no justification needsd for pursuance of diverse industrial development programmes in a country in the position of Iran. Abundant sources of energy and industrial materials along with surplus labour released from traditional agriculture, offers the most promising perspective in industrialization as a direct path for â't’tFining a well sustained econo’mïc growth and a permanent rise in the standard of living.

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Iran's manufacturing industry in the early 1960s was not large enough to play the rôle of leading sector in the création of linkages to other sectors, particularly to agriculture, According to the Input-Output table of 1965 only 16.2 percent of the total input in agriculture came from domestic manufacturing, while around 48 percent of input to manufacturing is supplied by domestic agriculture.( 12) Therefore the foreward linkage of manufacturing with agriculture was very weak; nor was manufacturing supplying a substantial amount of inputs for the growth of agriculture. Neither the agricultural sector was a significant market for domestic manufacturing.

In 1972 the situation was relatively improved according to the 1972 Input-Output table of Iran. In this year there was 6,2 billion Riais worth of input from manufacturing into agriculture, this consitituted about 26,3 percent of the total inter-sectoral inputs into agriculture, The manufacturing industry in 1972 purchased 88.5 billion Riais worth of inputs from domestic agriculture which was 75 percent more than its purchase in 1966, However, the enlarged manufacturing industry has reduced its dépendance on agriculture, and despite the absolute growth of agricultural inputs, in relative terms they constitute only

(12) Ministry of Economy, Summary of Iran's Input-Output Table, Tehran~196’5",

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36 percent of the total 244,7 billion worth of input into the manufacturing industry. (13)

The ratio of inputs into manufacturing from manufacturing in 1972 was larger than the 1966 ratio (43.5 percent versus 34.6 percent). This gréater level of self reliance in the industry, along with smaller dependence on the primary sector (agriculture) and with the absorption of an increased share of manufacturing input into agriculture in a short period of time (1966-72), are indications of greater complexity in the manufacturing industry and a relative maturity in the industiralization process.

Expansion of the industrial sector has not been uniform in the varions branches of industry. Manufacturing and Mining has constituted the major part of industries (secondary sector) , construction industry was the next big branch of activity in this sector of economy. Hâter and electricity had a smaller value added share of the total sector but has exhibited a much higher growth rate than the other branches of industry.

(13) Ministry of Economy, 1972 Input-Output tables of Iran, Tehran, 1972.

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The following table shows the structure of the industrial sector at varions points in tine.(14)

Table (3-4)

Composition of Industrial Value Added (In Billion Riais of 1972 Constant Prices)

Industry 1 19 59 1 1965 1 1970 1 1975 1 Manufacturing

& Mining

1

1 38.48 1

1 66.88 1

1 125.67

1

1

274.37

" 1 1 1

% in Sector 1(60.5) 1 (59.9)

1

(66.8)

1

(64.8) 1

Construction

i

24.05

”1 ”

1 40. 14 1 49.36

“ 1 -

1 119.33

" 1 1

% in Sector 1(37.8) 1 (35.9)

1

(26.2) 1 (28.1) 1

Rater

1

1 0.46

“1 ~

1 0.76

~ 1 -

1 2. 14 ” 1 *

1 4.88

■ 1 1

% in Sector 1 (0.7) 1 (0.7) 1 (1.1) (1.2) 1

Electricity

i

0.60 1 3.88 1 11.04

“ i “

1 25.07

■ 1 1

% in Sector 1(1.0) 1 (3.5) (5.9) 1 (5.9) 1

Total Value

1

“1“

1

1 “ 1 “ 1

■ ! 1

Added Industries! 1 1 1 1

and Mines 1 63.59

1

111.66 1 188.21 1 423.66 1

Hanufacturing and Mining as the leading industry in the secondary sector of the economy had an average annual growth of about 11 percent throughout the sixties. This industry*s output more than doubled in the 1970-75 period, indicating an average yearly growth rate of about 18%.

The construction industry which was growing at an average annual rate of 7.5 percent during the sixties has also achieved an accelerated rate of growth in recent years comp'arabTe 'to that of manufacturing.

(14) Value added Figures; Plan Organization Economies Statistics

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In the manufacturing and mining industries expansion was not uniform in the varions branches. The production of consumer goods, both durable and non-durable, has grown faster than that of both the capital and intermediate goods groups, The production of motor vehicals, refrigerators and télévision sets and other durable household items was amongst the fastest growing branches of the durable consumer goods industry. Food, beverage, textiles and clothing contributed the major part of growth in the production of non-durable consumer goods. although there was significant growth in the intermediate goôds industry,

(i.e. Chemical, metallic minerais, and non-metallic Products) supply of these items in many cases was not able to keep up with the rapid expansion in demand for industrial products, as a conséquence the imports of these goods has expanded rapidly.

Excess demand was not limited to the capital and intermediate goods market. The demand for manufactured consumer goods has also experienced some rapid increases due to large expeditures financed by oil revenue. Domestic manufacturing supply has been unable to meet this increased demand and as a resuit imports hâve been stimulated.

In promoting domestic industrial growth the government has offered various incentives to investors in the form of

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tax exemptions^ tariff protection, easy crédit, etc..

Despite these incentives houever, the private sector has been reluctant to engage large scale investment in the provinces. There has been a great degree of private industrial concentration in the vicinity of the national capital, Thus, ths public sector remains the main and sometimes sole, investor in the founding cf major manufacturing plants in the provinces. In addition to unbalanced régional industrialization and inconsistant sectoral development, technological dependece and lack of innovation in the development of productive goods' industries are among the major problems retarding Iran's long sought industrial development,. Such development reguires the adoption of an integrated national plan for industialization within the wider framework of national économie strategy,

The other major sector of the economy is the services sector, tfhich as we showed in tables (3-2) and (3-3) is the largest sector of the economy in terms of value added.

This sector produced about 48 percent of the gross domestic product in 1975. The sector includes transportation, communication, banking, insurance, brokerage, domestic trade, housing, public services and private services. The services sector had an average annual grovith rate of about 9^p'ercent“durrn"g^fhe siiri'tiësIn recent years this sector

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has expanded rapidly, achieving an average annual growth rate of 18,5 percent during the 1970-75 period. Growth of the public services, private services, domestic trade and banking hâve contributed the major part of growth in this sector.

The position of the different branches of servies in the tertiary sector at varions points of tima is shown in the following table,(15)

(15) Value added figures: Plan Organization, Economie Statistics, Percentage Share of Industries:

Calculated by àuthor

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(Table 3-5)

Composition of the Services Sector

(Value ftdded in Billion Riais, Constant 1972 Prices)

1 1959 1 1965 1 1970 1 19751 Transportation 1 25.79 l 30.81 I 41.15 1 90.221

% in Sector 1 (18.9) 1 (15.1) 1 (11.8) 1 (11.0) 1

Communication 1 1.06 J 1.85

“ 1 "

1 2.78 ‘1 * 1 1 7.941

% in Sector 1 (0.8) 1 (0.9) 1 (0.8) 1 (1.0)1

Banking i 5.34 1 10.52 1 32.41 1 91.511

% in Sector 1 (3.9) 1 (5.2) 1 (9.3) 1 (11.2) 1

Insurance

1

0.70 1 0.74 1 2. 16 1 7.371

% in Sector 1 (0.5) 1 (0.4) 1 (0.7) 1 (0.9)1

Brokerage 1 1.60 1 2.63 1 6. 48

■ 1 " 1 1 18.141

% in Sector 1 (1.2) 1 (1.3) 1 (1.8) 1 (2.2)1

Domestic Trade i 33.03 1 45. 64 1 74. 18 i135.041

% in Sector 1 (24.2) 1 (22.4) 1 (21.3) 1 (16.5) 1

Housing Rent 1 20.37 1 31.26 1 44.82 i 175.721

% in Sector 1 (14.9) 1 (15.3) I (12.8) 1 (21.5) 1

Public Services I 31.49 ( 56.63 1 102.32

1

208.071

% in Sector 1 (23.0) 1 (27.7) 1 (29.3) 1 (25.4) 1

Private Services

1

17.18 1 23.92 1 42.56 1 J 1 84.321

% in Sector 1 (12.6) 1 (11.7) 1 (12.2) 1 (10.3) 1

Total Value added in Services

1

\ 136.56 1

1 204.01

” 1 "

1

1 348.86

■ 1 --- 1 1 i 1818.31(

As we can see “Public Services” is the largest branch of the services sector contributing more than 25 percent of value added in this sector. “Public Services" has shown a slightly slower rate of growth than the total services sector in recent years,__ however, it is still pne of the

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largest branches of activities in tha national economy.

These figures indicate the extensive rôle of the government in the national economy, The other large branch of the services sector is ”Housing Rent". Due to the increased demand for urban housing in recent years, this industry has shcvn an extraordinarily high rate of growth during the 1970-75 period, "Banking and Brokerage " hâve shown a continuons high rate of growth and an increasing contribution to the total value added of the services sector, The growth of the "Private Services" has been slower than that of the entire sector and much slower than that of the "Public Services",. This indicates a more conservative attitude toward expansion in the private sector. kt the same time it indicates a higher efficiency of factors of production in the private sector.

Communication and insurance are both relatively small indus tires and hâve shown a sizable growth in the past.

Transportaion, although a large industry in this sector, has not achieved a high rate of growth compared to the other industries. There are indications that the lagging growth of transportation and communication has created severe difficulties in the continuation of a high rate of growth in the industrial sector of the economy.

Generally it seems that the tertiary sector of the economy ha“s ^fôwh much ‘ làrger in size than it otherwîse

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would hâve under carefully planned conditions. In addition its composition in varions branches does not suit the needs of growth in other sectors of the economy. This may suggest that the services sector besides its supposed rôle of facilitating the interaction and growth of the agricultural and industrial sectors of the economy, has taken the more dynamic rôle of injecting new sources of demand into the economy. Thus by constituting more than 48 percent of the GDP in real terms, the services sector has become the leading sector of the economy. This kind of intersectoral dynamism might be a practical short-run solution for the fast utilization of surplus revenues in public finance. However, continuation of harmonie growth in the long-run reguires more careful budgeting in the allocation of resources among the varions setors of the economy.

3.3 Régional Distribution of Output

The distribution of output by geographical région and by social class are two different aspects of income distribution analysis. Regionally there is a strong imbalance in terms of économie development among the varions régions (i.e. provinces) of the country. This imbalance is mainly characterized by a great degree of économie ■ concentration in the central province and particularly in métropolitan Tehran. An économie study of

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régional planning by the Plan Organization in 1972 indicated that the central région alone produced about 43 percent of the country's non-oil GNP. (16) Considering that the administrative machinery for planning and distribution of oil revenues, as well as the major productive and executive body for absorbtion of the new resources and implémentation of the projects, is also concentrated in the capital, an evea higher degree of total économie concentration (i.e. including oil related activités) would

be observed.

Computed levels different économie prédiction for 1977 income disparity..

of the per capita non-oil régions of the country represent an index of

GDP in n in 1972 and geographical

(16) Plan Organization, Report of the Fifth Development Plan

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Table (3-6)

Régional Per Capita Non-oil GDP (income) and Régional Déviations from National Per Capita GDP

Région 1

lincomel 1 1000 1 I Bialsl

1972

Déviation

%

1 1

I 1Income II 1000 i 1 Riais

1977* 1 Déviation

55 1 1 1 -Gilan, Hazandaran

2 -East & West

-1 1 1 25.5 1 1 i

-1255

1 1 -—--- Il 34.0 1 1

-26%

1 1 1 Azarbaijan

3 -(Central) Tehran,

1 16.6 1 1 1

-4355 Il 25.0 1 1

-46% 1 1 Senman, Zanjan | 64.7 |

4 -Khuzestan, Kohlciluiehl 1

+ 1 2356 Il 79.9 1 1

+ 74% 1 1 Boier Ahmad 1 36.9 I + 27% Il 53.9 + 26% 1 5 -Hamadan, Lorestan

6 -Isfahan, ïazd.

1 14.8 1 1 1

-4955 Il 27.0 1 1

-41% 1 1 Chahar Hahal 1 27.6 I -555 Il 38.9 -15% 1 7 -Fars

8 -Kerman, Sistan,

1 21.7 1 -2556 Il 35.6 1 1

-23% 1 1 Baluchestan 1 16.0 1 -4555 Il 32.5 -29% 1 9 -Khorasan

10-Kermanshahan,

1 18.2 1 1 1

-3756 Il 26.8 1 i

-42% 1 1 Kurdestan, Ilam 1 13.4 1 -54% Il 26.0 -43% 1 11-Hormozgan, Bushahr 1 11.6 j -60% Il 40.0 -13% 1 Average of the Country 1 29.0 1 -

1 1 ---

Il 46.0 - ■“ 1 1

Source: Plan Or ganization. (Report of the Fifth Plan) , Déviations computed by the author.

(*) Figures for 1977 are the initial prédictions of the plan.

The 1977 predicted figures of the above table indicate that the national development plan aimed at decreasing the degree of régional économie ineguality, Although the rapid growth of 1972-76 has made it possible to achieve the predicted levais of régional per capita GDP sooner than initially expectad, greater concentration of économie

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development in Teliran and in some already affluent régions has contributed to a greater level of ineguality.

& set of correlated factors may be referred to as the main causes of économie concentration in the central région (particularly Tehran): the historical centralization of the Administration in Tehran, an associated growth in the manufacturing and services industries, and the conseguent émergence of external économies and comparative advantages which serve to attract more capital and stimulate a self reinforcing process of économie concentration.

Simultaneously, the process prompts the growth of migration from the provinces and causes a growing démographie concentration. Greater urban density attracts more public expenditure on social services and velfare and also offers a greater market for consumer goods.

This Chain of factors créâtes a circular System that promotes continuons expansion of économie activities and keeps the region's population growing. i.e, Tehran aith a population of less than one million in 1950 has grown in population to 2.7 million in 1960, 3.8 million in 1972 and 4.5 million in 1976. It seems then, that despite government policies for the réduction of économie concentration in the central région, direct économie in ce n tive s ' f ^r cëït”falXi^Tion hâve i n c rea se d the geographical imbalance of development in the economy.

(58)

3.4 Class Structure of Income and Health

The distribution of income by social groups and classes is the other important issue in the area of income distribution. The statistical data in this field is very limited and the major source of information about the pattern of income distribution by groups is the urban and rural household budget survey of 1969. , This survey indicates a marked income disparity among the varions groups of society. i.e. the poorest ten percent of families engage in 2.5 percent of the total consumption expenditure, while the richest 10 percent of families engage in 32.5 percent of the total consumption expenditure. The distribution of consumption expenditure by varions household groups is summarixed in table (3-7).

Table (3-7)

Distribution of Consumption Expenditure

Household Groups by Consumption

1 Share of Total 1 Consumption by 1 Group

1 1 1

Cumulative Share of Lower Groups

(Lowest 10X) DI 1 2.5 percent 1 2.5 percent D2 1 3.5 percent 1 6.0 percent D3 1 3.9 percent 1 9. 9 percent D4 1 6.0 percent 1 15. 9 percent D5 i 6.5 percent 1 22.4 pe rcent D6 1 7.5 percent 1 29. 9 percent D7 1 10.5 percent 1 40.4 percent D8 1 11.6 percent 1 52.0 pe rcent D9 1 15.5 percent 1 67.5 percent (Highest 1015) DIO 1 32.5 percent 1 100.0 percent

Source:—Iran Statistics Centre, arba'n““a‘nd Rural ■HO'useholds Budget Survey of 1969.

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