Iranian Economic Review
Volume:13 Issue: 21, Spring 2008

This paper investigates return and volatility spillover effects between the small, medium and large size firms using the multivariate GARCH framework (By size we mean a company's value on the stock market: the number of shares it has outstanding multiplied by the share price. This is known as market capitalization, or cap size). Using the monthly data from January 1995 to March 2006, we find that return and volatility transmission mechanisms between large and small firms in Tehran Stock Exchange market are asymmetric. In particular, there are significant spillover effects in returns from the portfolio of smaller stocks to the portfolio of larger stocks. For volatility, there is also evidence of limited feedback from the portfolios of smaller stocks to the portfolios of larger stocks.

Outsourcing and foreign direct investment (FDI) have become widespread phenomena of globalization in recent decades. They not only bring in capital but also introduce advanced technology that can improve the factor productivity of the host country firms, thereby generating economic growth. More importantly, the technological benefit is not limited to locally affiliated firms but can also spread to non-affiliated ones. This paper develops theoretical relationships between outsourcing, FDI spillovers and productivity, and then examines empirically whether international outsourcing contributes to technological spillovers through which total factor productivity increases in a sample of East Asia-Pacific countries. A panel-based model is specified to allow for the link between FDI, outsourcing and productivity of the region’s countries during 1990-2004. The estimation results show that international outsourcing and FDI spillovers have had significant and expected effects on total factor productivity (TFP) of the Asia-Pacific countries. This can be a good lesson for Iran to promote its economic relations with the world, particularly with those countries investigated here, as they have adequate potentials in case.

Recent studies of monetary demand indicate that simple sum measurement of monetary aggregates in money demand is invalid; unless the monetary components of aggregates are perfect substitutes. Thus all predictions of monetary policies based on simple sum method of aggregation should be reevaluated.This paper focuses on the demand for money in Iran and utilizes the demand systems approach in the context of locally Flexible Functional Forms – the Generalized Leontief (GL). It also pays explicit attention to the theoretical regularity conditions of positivity, monotonicity and curvature. Without satisfaction of all these theoretical regularity conditions, the resulting inferences are worthless.The resulting estimates indicate that the Morishima elasticities of substitution between demand deposits and time deposits are less than unity, which indicates a low elasticities of substitution among these two monetary components.

This paper has examined the survival of Small and Medium-sized Enterprises (SMEs) in manufacturing industries in Iran during the years Second Development Plan. For the fist time it uses a large dataset to examine this issue in the context of a developing country. The paper discusses some methodological problems involved and derives estimating model for survival. The results of the paper tend to be consistent with the theories of firm survival, and other empirical work carried out in both developed and developing countries. In the case of the initial plant size, the results show that plant survival is not associated with size. We found that plants with private ownership are more likely to close compared with plants with public ownership. The plants with greater price-cost margin had lower failure rates. Furthermore, plants with a higher proportion of younger workers are less likely to survive, as are those plants with a higher share of female employees. Finally, the concentration ratio has a negative effect but the entry rate has a positive effect.

Exchange rates are subject to large and frequent fluctuations in mean and variances making it very difficult to model and forecast. In this paper, a series of tests for nonlinearity and chaos in exchange rates is conducted using the daily data on the market rates in Iran for the period 1991-2005. The tests for nonlinearity are BDS and ANN tests, and the tests for chaos are autocorrelation and Lyapunov exponents. The tests results suggest that the exchange rates and their rates of change follow complex nonlinear and stochastic processes. In the second part of the paper, an ANN model is designed to forecast the exchange rates. The results show that ANN outperforms both ARIMA and GARCH models in forecasting the exchange rates, but generates the same results as the alternative models in forecasting the rate of change of the exchange rates.

Foreign investments play a significant role in the economy of developing countries. In this article, an attempt is made to classify the member countries of the Organization of the Islamic Countries (OIC) based on the factors influencing their inward foreign direct investments. At first the relevant economic, social and political factors were introduced. Then by using a Numerical Taxonomy Method the OIC member countries were classified. Based on empirical studies, we have selected some of the most important factors (compound & single) influencing foreign investments for the ranking purpose. These factors are: Economic freedom index, the per Capita Number of Tourists, Regionalism index, Trade openness index, Market Size & Economic Stability index. Based on the results, Malaysia is the state with the highest chance of attracting foreign direct investments. Because of her high economic growth rate & the implementation of trade openness policies in recent years, this country has been able to gain the top position visa-vies other OIC member statesAs for the countries at the bottom of the ranking such as Libya & Uzbekistan the economic freedom index, as put out by the Heritage Foundation, shows that these countries have had the worst status when it comes to the compound economic freedom index among all the Islamic countries in the past years. Inappropriate policies of the public sectors in controlling financial markets, the goods and services markets, the labor market & the foreign sector have had a negative impact on foreign investments inflows. The results also indicate that among 46 OIC countries Iran is ranked in the 44th place.

The purpose of this study is to estimate the shadow price of CO2 gas emission utilizing the output distance function including good products (GDP) and bad products (CO2). At the first, output oriented technical efficiency under the two assumptions of weak and strong disposability of CO2 and Environmental Efficiency Index are estimated using the Iran’s economic data. Shadow price of CO2 gas emission is derived employing a Translog distance function.Results show that the average of technical efficiency under the two assumptions of strong and weak disposability and environmental efficiency are equal to 1.0743, 1.0910 and 0.99267, respectively. Average shadow price of CO2 emission is 0.10933 million US dollars per thousand tons based on the constant price of the year 2000.

In the present paper we have analyzed an important problem in the field of game theory, which is faced more frequently in the issues of income tax and has not been paid attention by scientific resources. The problem in question is the affect of taxpayer's unintentional error on optimum auditing strategy. One of the important problems in today's tax organizations is the presence of taxpayers’ unintentional error in their future income calculation and anticipation of their own economic activities for reporting on income tax statement. These errors will affect the optimum control and inspection strategy of net overall taxes. In the presented model in this paper, we have tried to consider the problem in specific condition in which the outcome results are very interesting.