Conducción de Operaciones y Seguridad

In this chapter, the data comprises annual observations for the years from 1974 to 2011. The variables include real investment, real output, the user cost of capital, the sum of the growth rate of capital and the rate of capital depreciation, inflation and alternative measures of oil. Appendix 5A provides a summary of the variables used in this chapter and their sources. Figures 5B1-B11 in Appendix 5B illustrates the graphs of these variables. These data are collected from the Central Bank of Iran (CBI), the Statistical Centre of Iran (SCI) and British Petroleum (BP). Where possible, the data have been cross-checked with international databases including the International Monetary Fund’s International Financial Statistics (IMF IFS), the World Bank and the Energy Information Administration (EIA). The choice of the period under consideration is based on data availability for all the variables. All of the variables are in natural logarithms, corresponding to the specifications of the derived empirical equations presented in Section 5.3 and Chapter Four Section 4.3. The use of logarithms transforms some non-linear models into linear ones, thus allowing the use of linear estimation procedures. Accordingly, the estimated regressors are the coefficients of elasticity and not the coefficients of marginal effects.

5.4.1. INVESTMENT

The data on gross fixed capital formation (in billion Rials at constant 2004/05 prices) are used to proxy for real investment, and are collected from the CBI’s annual national accounts (historical data series) available from 1959/60-2010/11. This variable in natural log is denoted by it and is

illustrated in Figure 5B1.

5.4.2. OUTPUT

The data on real gross domestic product or GDP (in billion Rials at constant 2004/05 prices) are used to proxy for real output. This variable in logarithm form is denoted by yt and is shown in

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Figure 5B2. The data on gross domestic product are collected from the CBI’s annual national accounts (historical data series) available from 1959/60-2010/11.

5.4.3. THE USER COST OF CAPITAL AND INFLATION

The user cost of capital for the Iranian economy is shown in Figure 5B3, denoted by ct and

calculated as follows:

(5.5) ct = (1 – Taxt)((Returnt/100) – dpt + δt),

where Taxt is the corporate tax rate variable calculated by dividing corporate taxes by total

revenues in current prices, and their data are collected from the CBI’s Time-series Government Budget and Fiscal Data. Returnt refers to the weighted average of the expected rates of return on

facilities and is used as a proxy for the rates of interest at the economy level. This variable is calculated as follows. First, the shares of i) Agriculture, ii) Manufacturing and Mining, iii) Construction and Housing, and iv) and the Rest of the Economy, in total GDP were computed. Then, the associated averages of minimum and maximum expected rates of return on facilities (presented in Appendix 2B) were calculated. Lastly, the weighted average of the expected rates of return on facilities was calculated. dpt is used as a proxy for inflation and refers to the implicit

deflator of gross domestic product. The annual data for this variable is collected from the CBI’s online database for the years from 1973/74-2010/11. The growth rate of capital (gkt) is

calculated as:

(5.6) gk

t = (Kt – Kt-1)/Kt-1,

where Kt denotes the capital stock. Assuming geometric depreciation at a constant rate δ, net

capital stock in each period can be shown to be a function of net capital stock in the previous period and gross investment in the current period as follows: Kt = (1 – δ)Kt-1 + It, where It is

gross investment. Thus, the following can be obtained: Kt = It + Kt-1 – δKt-1. Accordingly,

Kt – Kt-1 = It – δKt-1 and δKt-1 = It – (Kt – Kt-1). Hence:

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Capital stock is the stock of produced tangible fixed assets and the data on real capital stock (in billion Rials at constant 2004/05 prices) are obtained from the CBI’s annual national accounts (historical data series) available from 1974/75-2010/11. In addition, as explained earlier, inflation (dpt) based on the changes in the implicit deflator of gross domestic product is

calculated to proxy for the user cost of capital. The inclusion of dpt is due to the fact that the

data available on interest rates are centrally set and change infrequently, hence do not represent the market conditions in the Iranian economy. Therefore, depicted in Figure 5B4, this variable ‘acts as a proxy for the (missing) market interest rate’ in the country (Esfahani, et al., 2013, p.221). The variable ln(gk + δ)t is constructed employing equations (5.6) and (5.7), and is shown

in Figure 5B5, corresponding to the sum of depreciation rates and the growth rates of capital stock. Appendix 5L presents a table illustrating the methods of construction of these variables.

5.4.4. OIL-BASED MEASURES

This sub-section outlines different transformations of data on oil revenues and oil prices. Each of these measures suggests a different channel through which the presence of oil may have affected investment.

In this study, first, the oil revenue variable is introduced to the model of investment. Annual data on oil revenues at current prices are collected from the CBI’s annual national accounts (historical data series) from 1973/74-2010/11, and are converted to real figures using the implicit deflator of gross domestic product as follows: orevt = norevt – pt, where orevt, norevt

and pt refer to real oil revenues, nominal oil revenues and the implicit deflator of gross domestic

in (natural) logarithmic forms. Figure 5B6 demonstrates the graph of the real oil revenue variable for the period under study. Mork’s (1989) commonly used asymmetric specification as given in equation (3.22) in Chapter Three is then employed to calculate oil revenue increase and oil revenue decrease variables, displayed in Figures 5B8 and 5B9 and denoted by dorevitand

dorevdt, respectively.

Next, the volatility of international oil prices is introduced to the investment model. The data on monthly real crude oil prices are collected from the BP Statistical Review of World Energy. First, the changes in international oil prices (dpot) are calculated. Then, following Mohaddes and

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prices based on equation (3.21) in Chapter Three. Figure 5B7 illustrates the development in realized annual volatility of oil prices, denoted by volot, based on this method. Mork’s (1989)

asymmetric specification, explained in equation (3.22), is further used for a non-linear transformation of oil price volatility by specifying oil price volatility increase and decrease, shown in Figures 5B10 and 5B11 and denoted by voloit and volodt, respectively.