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Although agriculture historically was the most important sector of Iran’s economy, its share of the gross domestic product (GDP) has been declining since the 1930s due to the rise of manufacturing. Meanwhile, the mining sector, which is dominated by the production of oil, has grown rapidly since Iran nationalized its oil fields in the 1950s. Factory manufacturing has experienced periods of both rapid growth and stagnation. Trade and commerce activities have expanded with the country's increasing urbanization. During the late 1970s the Iranian economy appeared ready to grow to a level on par with the world’s developed countries, but the 1979 revolution and the subsequent eight-year war with Iraq strained all economic sectors. However, the need to produce for the war effort actually spurred industrialization, as did government spending on infrastructure development.

In the mid-1990s the service sector contributed the largest percentage of the GDP, followed by industry (mining and manufacturing) and agriculture. About 60 percent of the government's budget came from oil and natural gas revenues, and 40 percent came from taxes and fees. Government spending contributed to average annual inflation rates exceeding 20 percent. In 2001 the GDP was estimated at $114 billion, or $1,770 per capita. Because of these figures and the country’s diversified but small industrial base, the United Nations classifies Iran's economy as semi-developed.




Government Role in the Economy

Government planning plays an important role in Iran’s economy. Since the late 1940s the government has designed and implemented multiyear planning programs with the goal of industrial diversification. After the 1979 revolution, the government continued the industrialization that the shah had pursued but emphasized economic self-sufficiency, which required greater investment in agriculture. However, the flight abroad in 1978 and 1979 of most of the social and political elite, along with their capital (estimated at more than $28 billion), combined with the costly war with Iraq in the 1980s, left Iran’s economy severely damaged.

In the 1990s the Iranian government sought to privatize state industries to stimulate the ailing economy. In 1991 about 45 percent of large industry was government-owned. The majority of heavy industry—including steel, petrochemicals, copper, automobiles, and machine tools—was in the public sector, while most light industry was privately owned. That year the government announced plans to privatize 400 state-run factories; however, the actual sale of these companies proceeded slowly. A five-year development plan for the period from March 1995 to March 2000 calls for the creation of 2 million new jobs, primarily through stimulation of the private sector, especially industry.


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