Prior to the shocks of 1974, Iran enjoyed one of the highest growth
rate in non-oil exports in the world. The country"s growth rate after this
time, declined to the lowest in the world and it has continued to be the
same until now. This paper reveals the main reasons as demand
mismanagement and the government exchange policies.
In order to examine these assumptions, two models of general
equilibrium based on the basic years of 1973 and 1991, with two
different sector allocations, have been used. In these models, the
performance of various policies, including the quantity and ways of
spending government costs as well as different currency exchange
policies are simulated.
The results indicate that, by and large, non-oil exports have been
increased together with increases in the oil revenues. This has led to a
decrease in the domestic demand. The government policies can. affect
this general orientation and sometimes shifts the changes towards the
opposite direction.
The simulation result shows, whenever the oil revenues decreases
which follows by a decline in demand, government intervenes in the
exchange market and implements exchange allocation policies. In these
circumstances the possibility of decrease in the non-oil exports raises. It
is worth saying that in comparison with flexible exchange policies, those
allocation policies that lead to rises in the non-oil exports, are under
optimum point and the cost of adjustment relative to national income
decline is considerably higher than the flexible exchange system. If
exchange allocations acoinsides with rent seeking activities, disregard of
any alterations in the exports volume, the national income will severly
decrease.