Impacts of Monetary and Fiscal Policies on Value Added of Industrial Sector in Iran in Line with the General Policies of the Industrial Sector

Increasing the share of industry in GDP and increasing the value added of industry are the important objectives of the general policies in the industrial sector. Fiscal and monetary policies are the major economic policies, and they play a significant role in economic growth and development. Given the importance of the industrial sector of the Iranian economy and the importance of adopting appropriate fiscal and monetary policies, this research investigates the impact of these policies on value added of industrial sector in Iran. To this end, we used the annual data over the period 1979-2010 and autoregressive distributed lag (ARDL) model. The results show that the impact of monetary and fiscal policies on value added of industrial sector is positive and statistically significant in the short-run. In the long-run, monetary policy has a negative and significant effect on value added of industrial sector. In contrast, the impact of tax revenues as an alternative variable of fiscal policy on value added of industry is positive and significant, which can indicate that the tax revenues have been influenced by the activities of the industry. Moreover, government expenditures has no significant effect on value added of industrial sector in the long-run, indicating that the government expenditures has not been complementary to the investments of industrial sector and had no significant effect on industry value added because of the existence of the crowding out effects and different forms of government expenditure financing.