The Input Response of Firms to the Risk of Demand Uncertainty Based on the Levels of Technology (A Study of Manufacturing Industries in Iran)

The present paper aims to identify the input response of firms to the risks of demand uncertainty concerning the levels of technology. In this paper we examine panel data from1995 to 2018 and analyze the behavior of the manufacturing operating in the industry sector of the country from the prospect of risk taking and risk aversion and, its impact on the two inputs of labor and capital. To do this, the industries of Iran based on two-digit ISIC codes are divided into three categories of Low-level Technology (LLT), Moderate Level Technology (MLT) and High-level Technology (HLT) with respect to the level of technology. Research results show that low-tech industries that include food industries, textiles, garments, wood products, paper production, and paper products represent a significant and positive response to the risk of demand uncertainty and are risky. As a result, the ratio of increased capital to labor is higher and the industry is also expensive. But the situation is different for the other industries with a moderate to low technology and moderate to high technology. MLT industries and HLT industries show a negative and significant reaction to the risk of uncertainty and in fact, they are risk-averse, and the uncertainty of demand is higher and the ratio of the use of capital to labor is lower.