Asymmetric Effects of Oil Rents, Gas Production, and Gas Flaring on Iran’s Economic Growth under the Paris Agreement

This study examines the asymmetric effects of oil rent, gas production, and gas flaring on economic growth in Iran, an energy-dependent country committed to the Paris Agreement. For this purpose, time series data from 1990 to 2023 and a nonlinear, self-explanatory model with large lags (NARDL) were used. The main objective of this study is to analyze the difference in the positive and negative effects of these key energy variables on economic growth in the short and long term horizons, which were examined linearly and symmetrically in many previous studies. The results of the long-run relationship estimation showed that capital accumulation has a positive and significant effect on economic growth, while increasing trade liberalization is associated with a 2.87 percent decrease in economic growth, which probably indicates the vulnerability of the economy to imports and the lack of diversification of the Iranian economy. The most important finding is the existence of strong asymmetric effects in the oil rent and gas production variables. For oil rents, a decrease in oil revenues (negative shock) has a strong positive effect on economic growth in the long run with a coefficient of 1.503.
 

Introduction

Development strategies in many countries emphasize the exploitation of natural resources such as minerals, oil, and natural gas. However, empirical evidence shows that while resource endowments may be a necessary condition for growth, they are not sufficient on their own. Gas flaring refers to the burning of gases associated with oil and gas extraction. For several decades, flaring has been carried out in oil fields, releasing large amounts of environmental pollutants such as methane and black carbon into the atmosphere. Since 2015, with the adoption of the Paris Agreement and the global initiative of 'Zero Routine Flaring by 2030,' attention to the issue of gas flaring has increased worldwide. As a signatory to the Paris Agreement, Iran has also committed to reduce emissions by 4% (unconditional reduction) or 12% (conditional reduction) below business as usual (BAU) by 2030. This study allows for a disaggregated analysis of the economy’s responses to both increases and decreases in energy variables. By incorporating comprehensive control variables—including trade, population, and capital accumulation—the model gains both explanatory depth and methodological robustness. In doing so, the study contributes to a more nuanced understanding of the complex interactions between natural resources and economic growth in resource-dependent economies.

Theoretical Framework

The relationship between resource abundance, particularly oil rents, and economic growth has long been a subject of debate in development economics. The relationship between natural resource abundance—particularly oil rents—and economic growth has long been debated in development economics. Natural resource extraction produces dual effects: it increases national income, but it may also accelerate deindustrialization by diverting investment toward the resource sector. This process fosters rent-seeking behavior and corruption, undermining long-term economic performance.Although crude oil production holds the potential for prosperity and inclusive growth, empirical evidence indicates that resource-dependent economies often grow more slowly than resource-scarce ones. For example, Itoua et al (2021) found that in Congo, gas production was negatively associated with growth, whereas gas flaring had a positive effect. Okoye et al. (2022), using an ARDL model for Nigeria, showed that oil rents, gas flaring, and fossil fuel production exerted positive and significant long-term effects on growth.Other studies also highlight the diverse channels through which energy shocks influence growth. Hou et al. (2023) and Bashir (2022) found that oil price declines reduced growth in government-dependent sectors such as industry and agriculture, while less dependent sectors like services and transportation were less affected. Alola et al. (2023) reported that environmental degradation was linked to rising economic growth, gas flaring, energy exports, and urbanization, while economic growth has been found to contribute to higher levels of gas flaring in both Iran and the United States..

Methodology

This study is grounded in the neoclassical growth framework, particularly the Cobb–Douglas production function (Cobb & Douglas, 1928) and the Solow growth model (Solow, 1956). Building on prior studies (Itoua et al., 2021; Okoye et al., 2022), the empirical model is specified to capture both short-run and long-run asymmetries in the effects of oil rents, gas production, and gas flaring on economic growth. Annual time-series data spanning 1990–2023 were obtained from the World Bank for Iran. All econometric analyses were conducted using the NARDL approach within the EViews 13 software package..

Results and Discussion

The findings reveal several important patterns. First, asymmetric effects of oil rents are evident: while positive shocks to oil rents are statistically insignificant, negative shocks (declines in oil revenues) significantly and positively affect economic growth. This paradoxical outcome may reflect structural features of resource-dependent economies, where downturns in oil income pressure governments to implement reforms, diversify revenues, and curb rent-seeking behavior.Second, changes in gas production—whether increases or decreases—exert a positive and nearly symmetric effect on growth, highlighting the central role of gas in Iran’s econom Third, gas flaring shows a positive and significant long-term relationship with economic growth. This association likely gas flaring does not, in itself, contribute to economic growth; rather, it serves as an indicator of extensive exploration and production activities in the oil and gas sector that coincide with periods of economic expansion..

Conclusions and Suggestions

This article concludes that Jan Assmann’s theory of the theologization of the political provides a compelling alternative to Carl Schmitt’s secularization thesis. Whereas Schmitt argued that political concepts are derivative of secularized theological notions, Assmann reverses this logic, suggesting that theology is itself a political invention designed to stabilize and legitimize authority. His distinction between primary and secondary religion illustrates how shifts in religious meaning correspond to political restructuring, particularly in the context of ancient Egyptian governance. The implications of Assmann’s argument are significant for contemporary political theology. By decentering Schmitt’s Eurocentric framework and emphasizing the historical variability of political-religious relations, Assmann opens new pathways for analyzing legitimacy and sovereignty beyond the confines of secularization theory. His emphasis on Mosaic monotheism as a revolutionary theological-political paradigm challenges conventional interpretations and underscores the transformative potential of religious frameworks in shaping political order. Nevertheless, Assmann’s perspective is not without limitations. Critics argue that his analysis risks underestimating the enduring theological dimensions of politics and overlooks the ways in which religious concepts continue to permeate modern political structures. The tension between Schmitt and Assmann thus remains unresolved, b Based on the findings of this study, several key policy recommendations emerge:
1.Oil rents: Periods of declining oil revenues should be leveraged as opportunities to implement structural reforms, strengthen non-oil revenues, and advance economic diversification.
2.Gas production: Given its positive impact, investments in gas recovery technologies and the sustainable utilization of gas resources should be prioritized.
3.Gas flaring: Policymakers should aim to reduce flaring in line with the Paris Agreement, treating it as both an economic and environmental priority—even if short-run effects on growth appear positive.
4.Trade liberalization: Openness should be pursued cautiously, alongside supportive policies for domestic production and industry, to mitigate the risks of import dependence and unfair competition.
Overall, the study underscores the importance of managing natural resource rents prudently, reducing environmentally harmful practices, and building a diversified and resilient economic structure.
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