Imports Under a Foreign Exchange Constraint: The Case of the Islamic Republic of Iran


WP/95/97-EA
Imports Under a Foreign Exchange Constraint:
The Case of the Islamic Republic of Iran by Adnan Mazarei


This paper is an empirical study of the determination of imports under
a regime of foreign exchange rationing. Several previous studies have
suggested that the inadequacy of foreign exchange reserves induces many
developing countries to compress imports through a system of import
licensing and official foreign exchange allocation. In addition to the
usual variables, such as relative prices and income, the availability of
foreign exchange is a key determinant of the level of imports in these
countries. In the case of oil exporting countries, such a relationship
should be particularly close, given that sizable portions of both foreign
exchange receipts and national income are determined by petroleum exports.

This paper provides an empirical examination of the relationship
between foreign exchange receipts and imports for the Islamic Republic of
Iran during 1961/62-1992/93. The results verify the key role played by
petroleum export earnings in the determination of Iran's imports. This
paper also explores some of the consequences of the very significant
dependence of Iran's imports on foreign exchange receipts.