Political Economy of Iran: Institutions versus Culture

The Iranian revolution of 1979 is widely acknowledged as an event of world-historic significance with great empirical and theoretical implications. After almost four decades, there are still wide disagreements on its causes and consequences. The endurance and increasing power and influence of its most important institution, the state of the Islamic Republic of Iran, in the face of open internal and external coercion and violence is a political success story. But, declining per capita national income, continued dependence on oil revenues, and inefficient public finance and tax structure, all indicate an opposite direction economically. This thesis is an analysis of post-1979 revolution of the Iranian political economy, critically engaging the conceptual framework developed in North et al. (2009). The framework, a theoretical conceptualization of dynamic institutional change, focused on violence, beliefs, institutions and social orders, allows for investigation of the contextual and historical factors influencing and shaping post-revolution institutional changes in Iran. This study highlights not only the importance of endogenous institutional framework underlying political and economic developments, but also the critical role of exogenous factors, underplayed by the conceptual framework. It is an attempt to demonstrate that institutional frameworks viewed as cultural heritage are the outcomes of historical interplay of internal institutional frameworks and external environment in an uncertain non-ergodic world. Not only their origins, changes, and persistence are shaped and influenced by beliefs and ideas, but also their performances shape, change and sustain beliefs and ideas as well.