The economic impacts of foreign direct investment in oil and gas sector: A CGE analysis for iranian economy.

FDI not only increases capital supply in the host country, but can also improve the productivity of domestic firms through knowledge transfer. Dutch diseases and technology spillover can be some of the important effects of FDI in the oil and gas (OIG) sector. The Dutch disease refers to the problems associated with negative consequences of large increases in a country's raw materials such as oil and gas. However, affecting productivity depends on the absorptive capacity or the ability to adapt foreign technology by domestic firms. If Foreign direct investment (FDI) inflow is without productivity spillover, it may have negative effects on economy, especially if the destination of FDI is sectors such as Oil and gas sector(OIG). FDI not only plays a vital role in the development of this sector, but also significantly affects the macro and micro levels. Identifying the type and extent of these effects on economy requires quantitative and empirical evaluations. Therefore, the current research has tried to study the effects of FDI in the OIG sector on Iran's economy using a regional CGE model. The results showed that if FDI does not lead to productivity spillover, it causes Dutch disease in the economy of Iran. Production and employment have decreased in tradable and increased in non-tradable sectors. If FDI improves productivity of the firms, the impacts of Dutch disease will be reduced or eliminated. Therefore, production will be improved in all sectors, and consumer price index will decrease. In this regard, the absorptive capacity of domestic firms plays an important role in the extent of technology spillover and finally reducing the impact of Dutch disease. • GTAP model used to consider the effects of FDI inflow to oil and gas sector on Iranian economy. • FDI inflow leads to an increase in the price of goods in all sectors with higher effects on the price of non-tradable. • FDI inflow has negative impact on production and employment of tradable sectors. • Foreign technology spillovers through FDI can significantly decrease the effects of Dutch disease. • As the capability of a firm in absorbing the externality of FDI be higher, the effect of spillover will be higher. [ABSTRACT FROM AUTHOR]