The Impact of capital goods imports on Iran's industrial exports:The difference and system GMM approach

Capital goods are the main elements for the creation and diffusion of technology, increasing productivity, and improving technology in both manufacturing and non-manufacturing sectors, but since the production of these goods is cost intensive or unavailable in most developing economies, global knowledge spillover is an appropriate alternative for domestic R&D. Therefore, the import of capital goods from developed countries and these technological spillovers will lead to cost reduction and increase the export competiveness of domestic firms. Accordingly, this article examines the impact of the import of capital goods along with the other effective factors on Iranian manufacturing exports at the 2-digit level of ISIC code (Rev4) by using the dynamic panel data model and the Difference and System GMM (generalized method-of-moments) from 2012 to 2019. The results indicate that the capital goods import has a positive and significant impact on the aggregate manufacturing export with a probability of 0.009% as a 1 percent increase in imports of capital goods leads to a 0.05 percent increase in Iran's industrial exports.