Determinants of Stagflation in Iranian Manufacturing Sector

Abstract

The purpose of this study is to find the main determinants of stagflation in Iranian manufacturing sector during 1982-2012. We have used the data of manufacturing industries, categorizing them into three groups of resource base, low technology and medium and high technological industries. We have used logit regression with fixed effect, taking industries utilizing less than 50 percent of their nominal capacity and having more than 20 percent disguised unemployment in addition with having capital–output ratio of over 3o percent as industries suffering from stagflation. If a manufacturing industry was suffering stagflation, its dependent variable was given a value of 1 and the dependent variable of other industries was set to zero. Our explanatory variables include the imports of intermediate goods, wage costs, labor productivity, interest rates, exchange rate and oil revenue. Our findings show that all the variables with the exception of labor productivity had expected signs and their coefficients were statistically significant. The results show that, while as expected, the coefficient of labor productivity was negative, however, the coefficients of other variables were positive and significant implying positive impact on stagflation.

Keywords

• stagflation
• manufacturing industries
• logit model