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Rural-urban disparities have narrowed in the Islamic Republic of Iran. In 1976, on the eve of the Iranian revolution, the mean per capita household income in rural areas was 44 percent of that in urban areas. By 2005, it had increased to 63 percent.

The Shah’s government favored cities over the countryside. Price controls for essential foods depressed agricultural incomes. High tariff s, import bans, and licensing for industrial goods propped up prices of manufactured goods and depressed farmers’ purchasing power. An inward-looking development strategy oriented toward final domestic demand amplified internal migration to Tehran and a few other large cities. For every indicator of development, the center performed far better than the periphery. In 1973, the poverty rate was 23 percent in the central region and 42 percent for the country. This spatial inequality matched the nation’s ethnic map, fueling tensions.

What has happened since the commitment in 1979 to address spatial disparities?

• First, the share of the urban population has increased from 49 to 67 percent between 1979 and 2005. This is a continuation of a longer-term trend: the urban population had grown by 5.4 percent per year (and in Tehran by 6 percent) between 1966 and 1976.
  
• Second, the rural-urban gap in household incomes has narrowed. Between 1976 and 1984, agricultural value added grew by 31 percent, twice the rate of the nonoil economy. One reason for this growth was that farmgate prices rose 55 percent. Another reason was that more was spent on projects to increase the productivity of small and medium-size farms. Growth could also be attributed to the fact that agricultural production in the Islamic Republic of Iran is dominated by the private sector, whereas large industrial enterprises and service providers were nationalized after the revolution, which hindered their efficiency.
  
• Third, rural and urban human development indicators improved, even in the lagging provinces. Between 1976 and 1996, the female literacy rate rose from 17 to 62 percent, while for urban women it rose from 56 to 82 percent. During 1994–2000, infant mortality and under-5 mortality fell fastest in the poorest provinces.
  
• Finally, overall poverty has fallen. The national poverty rate was at 8.1 percent in 2005, with relatively modest differences in rural and urban poverty of 10 and 7.1 percent, respectively. But poverty rates still vary a lot between provinces, ranging from 1.4 to 23.3 percent.

The political commitment to spatial equity has produced mixed outcomes during the last 30 years: overall poverty declines and a convergence in ruralurban standards of living, but persistent differences in interprovincial living standards.

Based on a contribution by Anton Dobronogov, Alexander Kremer, and others.