Economic instability and the Major Macroeconomic sector's Economic growth: Principle Components Analysis (PCA) Approach

Inflation, unemployment, stagnation in production, budget deficit and exchange rate fluctuations, are the factors that governments have always sought to control them in order to achieve the three goals of allocation, distribution and economic stability. Economists now accept that economic stability is a prerequisite for continuing high economic growth. The current study, using the VAR model, tries to explore the effects and consequences of economic instability on the major macroeconomic sectors’economic growth in Iran during the 1981-2013 periods. In this study, using the principle components analysis (PCA), an indicator of economic instability was built and then the impact of this indicator on economic growth of Iran was examined. The findings show that only the importance of labor in the Agricultural sector but in other sectors more than other variables, physical capital is the more important in explaining economic growth. In all sectors of macroeconomics, variable economic instability negative impact on economic growth in the sector. Four parts macroeconomic indicator of economic instability in the analysis of variance, respectively, in the fields of Industry and Minerals, Services, Agriculture and Oil and Gas exploration is more important. The authorities should pay particular attention to the economic recovery and to reduce volatility and shocks in the economy to increase economic growth.