Economics: History and Consequences

This panel was compiled by the Conference Program Team from independently submitted paper proposals


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Bandar Lengeh, an Iranian harbor sitting on the shores of the Persian Gulf, was noted for its single item commodity export to Europe during the latter quarter of the 19th century. The commodity, in high commercial demand, was nacre or mother of pearl.

According to British commercial and Foreign Office documents, the product that was to make Bandar Lengeh famous was found in abundance on its shores in the form of pearl oyster and sea shells. The mother of pearl, known as nacre, and in Persian nagir is an organic-inorganic composite material produced by molluscs as an inner shell layer. This strong and resilient composite make up the outer coating of pearls.

Nacre was in great demand in the clothing industry largely for its use as buttons and for decorative purposes. During the end of the 19th century Qajar rule the demand for the export of this product increased significantly. In just a decade, from 1875 to 1885, the export value of the product increased more than 300% from 31,000 to 118,400 Indian Rupees per annum. By the end of the 19th century the Germans engaged in the trade of mother of pearl foremost for the commercial production of buttons in ever larger quantities.

The article is based primarily on British Administrative Reports, Foreign Office documents and Persian primary sources. It investigates the nature of this single export commodity that characterized Bandar Lengeh and will compare the product with other cities engaged in a similar export of cash-crops during this period of economic transition in Iranian history. The major cash-crops that highlighted the Iranian economy at the end of the 19th century were primarily opium followed by dried fruits and hand woven carpets. However, the export of mother of pearl was an exception.

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Research in the archives of The Imperial Bank of Persia (IBP) shows that it saw itself as a facilitator of trade payments, not as a lending or deposit institution – in other words, entirely differently from modern banks, and with a limited role for economic development. Chartered in 1889, the only substantial borrower was the Iranian government, which used a wide array of mechanisms to extract cash advances from the IBP. As part of its extraordinarily cautious practices, the IBP kept at each branch more metallic cash—that is, silver and gold—than the paper notes in circulation. One indication that the IBP had good reason to hold such large reserves in coin was the value of notes fluctuated sometime more than 50 percent from year to year. Because of the very conservative reserve in coin, note issuance may not have been directly profitable, but it put the IBP in a good position to argue that it should be allowed to import silver for the mint to turn into coin, an operation that was quite profitable. The IBP faced difficulties in getting its paper currency accepted as fully equivalent to silver. Runs on the IBP were at times quite successful at preventing regular conversion of notes into silver. At the same time, the advantages of paper currency can be seen from the competing paper currencies issued by Iranian merchants, to which the IBP often objected to the government. The paper currencies issued by merchants were in many ways a further development of the system of bijaks or barats, which were credit certificates issued by sarrafs, or money-lenders (as well as by the large merchants, especially in cities without specialized sarrafs). The government frequently made payments by means of barats—the term bijak apparently being seldom used for government credit certificates—which were little more than forced loans. In short, Iranians had many reasons to regard with suspicion paper promises to pay in coin, so it is hardly surprising that the IBP faced reluctance to accept at face value its claim that its paper could be readily converted into hard coin. And it was hardly surprising that sarrafs, angered that the IBP was taking over from them the business of lending to the government, would periodically organize runs on the IBP, often aided and abetted by Russian interests.

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Poverty rates in Iran declined robustly during 1989-2007, following sharp rises during 1979-1988. Though this important phenomenon has been noted by many scholars, its causes have not been analyzed in rigorous ways. We ask: What mechanisms helped reduce poverty rates during 1989-2007? Was it economic growth? Was growth equalizing or unequalizing? How much did redistribution and social protection mechanisms contribute? Did government spending and subsidies matter? Did social protection organizations matter? Which one and in which way?
This paper is an attempt to compare the overall distributional effects of growth, government spending, and three social protection institutions in Iran—namely, activities of three social protection organizations: Imam Khomeini Relief Foundation (IKRF), Social Welfare Organization (SWO), and Social Security Organization (SSO). The analysis is based on annual household surveys along with province-level public spending and welfare program activity. The paper uses quantile regression to identify the general equilibrium effects of the factors that shape household expenditure distribution in Iran.
We find that growth has had highly unequalizing effects on expenditure distribution in Iran. But, the province-level government spending and the activities of SWO and IKRF and unemployment insurance program of SSO along with economy-wide factors, such as food subsidy policies during 1998-2006, have served as important counter-balances. The pension and health insurance programs offered by the SSO have improved the livelihood of a wide range of households, other than the top decile.