Assessing the Asymmetric Effects of Real Exchange Rates and Industrial Value -Added on the Industrial Employment (NARDL Approach)

The study of the effect of real exchange rate and value- added on employment as one of the functional variables of the industrial sector in the theoretical and experimental literature of industrial economics in recent years has been considered by economists in this field.

In the present study, using the NARDL nonlinear model, the asymmetric effects of the real exchange rate and value added of the industrial sector on the employment rate of the industrial sector in Iran during the period of 1986-2019 have been evaluated.

The results of empirical findings indicate that the comination of integrated level between dependent variable and explanatory variables are I(0) and I(1). Moreover, the real exchange rate has been stationary with considering of structural break at level. The short-run dynamic model showe that there is a long-run relationship between variables. Estimated long-run relationship demonstrate that the asymmetry of real exchange rate and value-added on employment had been confirmed in Iran's industrial sector in short and long term. This result obtained by applying Wald test with Chi-square distribution. Also, in the long run, increasing the real exchange rate has a positive effect and decreasing the real exchange rate has a negative and significant effect on employment in the industrial sector. On the other hand, increasing the value added of the industrial sector in the long run has a positive effect and reducing it has a negative effect on the employment rate of this sector.The economic sanctions has also a negative and significant effect on the industrial sector employment in the long run. CUSUM and CUSUMSQ tests are implemented for evaluation of coefficient consisteny in log-run. This tests revealed that the estimated coefficients are consistent. The results of error correction model explain that the increase and decrease of the real exchange rate and value- added of the industrial sector in the short term also have expected signs and the coefficient of error term in before period is -0.76, which indicates the high convergence rate of the short-term model to equilibrium status. In other words, in the period of 1.3 period or year, the short-term error is corrected and the adjustment speed is relatively high. The situation of asymmetry effevts for real exchange rate and industry value-added shows that the increase and decrease of the real exchange rate and the value- added of the industrial sector over the period of 15 years tend to their equilibrium or long-term value, ie values of -0.08 and -0.14. For value- added, they tend to increase and decrease to 0.27 and -0.11 in the long run.

Based on the findings of this study, it is suggested that economic policy makers control the general level of prices and inflation to increase the real exchange rate and production through employment capacity to improve employment in this sector. Promoting value added in the industrial sector by applying appropriate policies such as reducing intermediary costs and increasing sales value in order to enhancement the level of employment is another policy proposal of this research.