The effect of actual currency rate on total productivity of factors of production of industrial sector of Iran

Abstract

The aim of the present research is to study the effect of actual currency rate on total productivity of factors of production in industrial sector of Iran. In other words. the effect of the actual currency rate on total productivity of factors of production in industrial sector of Iran was studied by using econometric method of OLS (ordinary least squares)  during 1974- 2006. On this basis, the effects of the actual rate of foreign currency, the openness rate of economy, foreign investment, private and public investment on total productivity of factors of production in the industrial sector of our country were analyzed and studied. In order to calculate total productivity of factors of production Divisia method has been used. The estimation outcome and model estimation indicate that there is a significant and reverse relationship between actual currency rate and economic openness degree with total productivity of factors of production in long-term. The results of this estimation indicate that, due to the dependency of the industry and economy of Iran to imported intermediate and capital goods having modern technologies, which are in turn the results of the R & D activities of developed countries; therefore, with an increase in actual currency rate the investment rate decreases due to capital goods becoming more expensive that this follows with a decrease in total productivity of factors of production. Also, the relationship between the openness rate of economy and total productivity of factors of production indicate that, due to the existence of some weaknesses and problems in Iran’s structures and especially in social structures, there is an increase in openness rate of economy resulting in a decrease in total productivity of factors of production of the industrial sector.