How Recession Affects the Industrial Firms in Iran

In this paper, we examine how firms are affected by recessions through three transmission channels (domestic demand, financial market conditions, and international trade). Accordingly, five different indices of performance (production, sales, profit, investment, and value added) are defined, for which the effects of the aforementioned channels are measured. Using panel data of “Annual Survey of Iranian Manufacturing Enterprises” at the plant level for the period (2003- 2012), the indices are measured for the level of industrial activities and the level of firm as well. Our results show that international trade and financial market conditions have the most significant role in explaining firms’ performance in the 2008- 2009 recession. Firms with high dependency on external finance or those that export larger shares of their products had relatively lower performance; however, those firms that import larger shares of their materials performed better compared to others. In contrast, in the 2012-2013 recession, the recession propagated mostly through domestic demand. Moreover, exporting firms demonstrate better performance, and the effect of importing intermediate goods is statistically insignificant.