Measurement the Production Variations of Gasoline Price Shock on Iranian Economic Sectors: Comparison of the Standard and the Nonlinear Ghosh Supply-Driven Input-Output Models

The use of linear production functions in the structure of input-output model is one of the basic limitations of these models. Therefore, the present study, while eliminating the shortcomings of the standard supply-driven Gosh model by replacing the linear production function with the Cobb–Douglas production function in the supply-driven input-output model and introducing a nonlinear model, it compares the effects of rising gasoline prices on two standard linear models and a nonlinear supply-driven models. For this purpose, the input-output table of 2,016 of the Central Bank of the Islamic Republic of Iran has been employed to extract the non-linear supply-driven input-output model. Also, to calculate the value-added changes due to the increase in gasoline prices, gasoline subsidy figures in the hydrocarbon balance sheet in 2016 have been used. The results of this study show that in both models, due to the increase in gasoline prices, the production cost of all sectors increases, but the rate of increase in production costs in the standard supply-driven model is more than non-linear supply-driven model. The reason for this result is the possibility of substitution between inputs in the non-linear supply-driven model. In other words, in the non-linear Gosh supply-driven model, unlike the standard model, if the price of one of the inputs increases, other inputs at a lower cost will replace this input and the rate of increase in the cost of production of economic sectors will be less.