The Effect of Changing the Volume and Composition of Investment on Production and Employment in Iran

Document Type : Research Paper

Author

Associate Professor of Economics Faculty of Economics, Management and Accounting, University of Sistan and Baluchistan, Zahedan, Iran.

Abstract

Objective: One of the factors affecting production and employment in one economy is investment. In economic literature, capital formation is the driving force of economic activities and economic growth patterns are based on the use of capital and labor. Despite the importance of investment in production and subsequent employment in the economy, unfortunately, in recent years, capital formation and the level of investment in the country have been very low due to several reasons such as economic instability. Therefore, it has created major problems in the field of production and employment in the country and its different regions, and it is necessary to make a codified and coherent planning to increase production and employment in the country. On the other hand, the first step for planning and making policies for the growth of production and employment is to identify the factors affecting them and to examine the effectiveness of each of these factors. The point that exists in relation to investment at the sector level (different economic sectors) is that the potential of creating production and employment (direct and indirect) of different economic sectors is different from each other. For this reason, investment in different economic sectors can have different effects on production and employment at the level of the sector as well as the whole economy. Among the reasons for the difference in the production potential and direct employment generation of the sectors, we can mention the difference in technology used in different sectors. In this way, some economic sectors have a high direct employment generation coefficient and some others have lower direct employment generation. Among the reasons for the difference in production potential and indirect employment generation of the sectors, we can also mention the difference in the communication and links between the sectors of each of the sectors with each other. Sectors that have more links with other sectors have a high potential in production and creating employment due to a certain amount of investment. Therefore, it can be said that in addition to the total amount of investment in the economy, the relative share of the sectors in the total investment, or in other words, the structure and composition of the investment is also effective in the production and employment of the entire economy. The purpose of this study is to investigate the effect of investment expenditure change on changes in output and employment in different economic sectors in Iran.
Method: In this study, structural decomposition Analysis (SDA) in the input-output model between 2011 and 2016 have been used. To do this, first, the investment demand matrix in the economy was divided into two matrices, one is the investment composition (structure) matrix and the other is the total investment matrix. The investment composition matrix represents the share of each sector in the total investment in the economy and the second matrix represents the total investment in different sectors of the economy. For the calculations of this study, the input-output tables of the years 2011 and 2016 are needed. The statistical table of 2011 and 2016 was obtained from Iran Statistics Center. In the next step, both input-output tables were aggregated based on the availability of employment statistics in 18 sectors. After that, to remove price effects in research calculations, input-output tables should be converted to constant price. In this study, to eliminate the effect of price changes between 2011 and 2016, the table of 2016 was converted to the constant price of 2011 with the double deflation method. For this purpose, the price adjustment index of eighteen sectors has been used. Finally, this adjustment index was used to convert the 2016 table to the 2011 price.
Results: The results of this study showed that the increase in the level of investment (with a constant composition) has increased the total production of sectors of the economy by 2361599.59 billion rials, but the change in the structure of investment (with a constant volume) has reduced the total production 5224865 billion Rials. Changing the composition of investment has decreased 509620 people and changing the volume of investment has increased 3021509 people in the total employment of the economy.
Conclusion: Considering the negative impact of the change in investment composition on production and employment in Iran's economy, it is suggested to prioritize investment in sectors that have higher production and employment coefficients in the economy.

Keywords

Main Subjects

References

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  • Receive Date: 25 November 2022
  • Revise Date: 18 January 2023
  • Accept Date: 22 January 2023

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