Development of Iran

Iran's economic growth in the past century clearly shows that it has not yet

entered the path of sustained and expediential growth. For the last thirty years Iran has been

experiencing boom and bust cycle rather than sustained growth. The close association between

per capita income and per capita oil revenues suggests a reason for the fluctuating level of

income. Both per capita GDP and non-oil GDP increased steadily during 1960-76 while oil

income was rising (Sewer). The decline in per capita oil revenues which started in the mid 1970s

slowed the economy, but is not entirely responsible for the one-third decrease in per capita GDP

in 1977-82 (Sewer). Disruptions due to the revolution and the war with Iraq no doubt also

contributed to economic decline. In the post-revolution years we again observe a close association

between oil and per capita income. This pattern of boom and bust is not peculiar to Iran and is

shared by other oil-exporting countries of the Middle East (Sewer) In contrast, the fast growing

countries of similar characteristics based their growth not on exports of fossil fuels but on human

capital. Replacing oil with human capital as the engine of growth in Iran would be a precondition

for long term, stable growth.

It is clear that Iran is a troubled country. They are currently troubled by international war

and civil unrest within there own country. Oil embargos and standers of exports also play a

critical role in why Iran has a hard time competing in the global market and practicing

international trade. Iran has had a troubled history, from rebellions to removal of political parties

from power. However in this paper I examine the necessary conditions for Iran to take full

advantage of its positive demographic trends that I believe will help move the country into a more

stable economic position. I identify the two most important preconditions for this to be a sound

educational system and a flexible labor market. A flexible labor market would provide parents

and teachers with signals of what individual traits and skills are most needed and rewarded in

production. The educational system should then emphasize the acquisition of the same productive

skills like including creativity, attitude toward work, and technical know-how. For their part,

parents will focus on a strategy for raising a family which will be based on fertility control and

instilling values and skills in their children that will ensure their success in the labor market.

Changes in size and distribution of population have caused a profound influence on Iran's

recent economic and social development and will be even more influential in the coming decades.

The vast movement of the rural youth to urban areas affected the 1978-79 social upheavals, as did

the youthfulness of the population affect the rise of the democratic reform movement which

started with President Khatami's election in 1997 (Barlow). The Islamic revolution of 1979

encouraged a rise in fertility in the early 1980s (Barlow),which nearly reversed the path of Iran's

fertility transition. A rapid decline in fertility since 1985 transformed the country's demography

and now promises to shape the path of its future economic growth (Barlow). In this paper I argue

that Iran's demographic transition has entered a critical phase in which the role of the family may

shift from procreation to production of human capital. I show that with the right social and

economic conditions, this shift can propel the country onto the path of continuous growth.

John Caldwell an economic development researcher has described the most significant

change that takes place when a country moves from an underdeveloped to developed status in

terms of the intergenerational transfer of resources. Caldwell shows how parents residing in

underdeveloped countries draw upon their children to improve their own standard of living.

Because these countries generally lack social insurance and old age support for the elderly,

parents prefer high fertility to insure enough surviving children to provide for them in their old

age. Where labor markets are undeveloped and family labor is prevalent, some of the

intergenerational transfer takes place while their offspring are still young, working in the farm or

family business when they could be in school learning (Caldwell). These conditions foster a

preference for large families, and particularly for male children.

Gary Becker's (1960, 1991) view of the economics of the family also presents a similar

division of demographic outcomes based on a country's level of development. He frames the