Determining Inter-sectoral Linkages in the Iranian Economy using Extraction Method

The purpose of this study is to find the key Iranian sectors in terms of output and employment. This research is done based on the Input-Output table of the year 2001 and Extraction Method. In this regard the economic activities are aggregated into 36 sectors. The results show that Forward and Backward output linkages were significant in five sectors namely agriculture، construction، wholesale and retail services، transport and other services. Forward linkages were strong in six sectors including oil and natural gas، mines and chemicals and petrochemicals، nonmetallic minerals، basic metals، water، gas and electricity as a group. On the other hand، backward linkages were very strong in four sectors such as food industries، transport equipment and machinery، education and health services and public services. Estimating the direct and indirect employment generation shows that agriculture، construction، wholesale and retail services، food industry، transport، education and health services and transport equipment are the main employment generating sectors. Spearman Rank Correlation Coefficient is also used to find out if there is any correlation between high ranking activities in output and employment. The results also indicate that there is a high rank correlation between backward output linkages and employment generation but week forward output linkages and employment generations. This shows that those activities which serve other activities in domestic market through its backward linkages are more important in output and employment generation. The weak rank correlation between output and employment generation indicate that these activities are highly depending on domestic demand but do not have much linkage with other sectors in the domestic economy، perhaps due to their dependence on imports for their inputs. Total average rank correlation between key sectors in output and employment generation shows a very weak correlation between the two، indicating that the sectors generating high linkages in output are also the same activities creating linkage in employment. The research findings reveal that how an oil producing country، using its oil revenues for imports and leading the expansion of wholesale and retail activities، transport services and public services in education health and other bureaucratic administration services، undermines the development of its manufacturing industries which are labeled as “engine of development”.