Analysis of the Effect of Market Shocks and Economic Sanctions on the Value Added of Industry

This study seeks to examine the impact of market shocks and economic sanctions on production and value added in the industrial sector, one of the most important sectors of the economy, during period of recession and boom. For this purpose, we examine the effect of oil shocks, currency fluctuations and economic sanctions on the added value of the industrial sector during the recession and boom period, from 1974 to 2016. The results of Markov model estimation imply that the effects of shocks are asymmetric. Positive oil shocks and currency fluctuations have positive effect on value added industrial sector during the boom period and have negative effect during the recession. The results show that if Iran's economy is booming at time t, market shocks and economic sanctions will remain in the same position with a probability of 0.3864%, and if the Iranian economy If t + 1 is in a recession, it is likely to remain at 0.6791% at t + 1. While according to results of estimating the number of years in each diet, the number of prosperity years was lower than the recession period (27 recession periods vs. 14 prosperity periods) and the rate of durability was more during the recession. Another interesting point is that Inventory of capital, inflation of production, consumption of private sector and employment during the recession had a negative relationship with the added value of industry.So, about Iran economy, it seems that establishing an appropriate theoretical relationship between these important variables influenced more by fundamental changes in Political and economic conditions than government economic policies. Thus, although the role of macroeconomic policies, including monetary and fiscal policies, is essential for the growth of value added production but also providing economic security and a secure environment for investment, expansion and diversifying financial markets and institutions, and More productive engagement with the world and major trading partners, moving towards an open economy and the use of foreign investment and developing capital market regulations with the aim of transparency and stability to increase savings and investment is essential and could provide the basis for Increasing production in the manufacturing sector.