Resurrecting a forgotten model: Updating Mashayekhi's model of Iranian economic development

Abstract

In this chapter, Mashayekhi's system dynamics model, which was built in 1978 to analyze Iranian economic development, is resurrected through a comprehensive restructuring and revalidation process. The focus of the original model was on the dependency of Iran's economy on oil and its vulnerability to "petro dollars." Since oil dependency is still a major issue in contemporary Iranian economic policy debates, reexamining Mashayekhi's model is beneficial. It is shown that the original model is unable to reproduce the historical behavior of the Iranian economy from the mid-1980s onward. However, updating its exogenous variables, modifying some of its assumptions, and recalibrating some of its parameters significantly improve its ability to reproduce Iranian economic history. Revalidation of the modified model shows that it is fairly robust and generally reliable. Since the boundary of the original model was drawn somewhat narrowly, even the updated version presented in this chapter is an inadequate platform for analyzing many contemporary Iranian macroeconomic policies. However, the updated model is an excellent tool for analyzing questions directly related to the issue of Iranian oil dependency. Finally, it is argued that this chapter can serve as a starting point for those who wish to develop a system dynamics macroeconomic model of any resource-dependent developing nation. © Springer Science+Business Media New York 2013.