Industrial job creation by using Iran's untapped export potential

Document Type : Research Paper

Authors

1 Professor of the Faculty of Economics, University of Tehran, Tehran, Iran.

2 Associate Professor of the Faculty of Management and Economics, Sharif University of Technology, Tehran, Iran

3 PhD student in economics, University of Tehran (Alborz campus), Tehran, Iran.

Abstract

Purpose: This research paper aims to examine how changes in Iran's industrial exports, specifically the Untapped Export Potential (UEP), affect the employment level. We analyzed the data from 120 industrial activities in Iran spanning the years 2002 to 2020 and then categorized them according to the four-digit ISIC Rev. and four codes. Previous studies mentioned in the existing literature have primarily focused on the impact of the realized exports on employment. However, this article adopts a different approach by introducing the concept of Untapped Export Potential and exploring its influence on the employment-trade relationship. The UEP concept refers to the potential volume of exports between Iran and its trading partners.
Methodology: To account for the autoregressive nature of employment over consecutive years, we employ a dynamic labor demand regression model. In this model, the main control determinants of the outcome of interest are production, wages, research and development (R&D) costs, imports and, particularly, the Untapped Export Potential (UEP). We anticipate that employment will be positively influenced by the lagged employment level, value added of activities, R&D costs, and imports. On the other hand, we expect employment to be negatively affected by wages and the UEP.
Findings and discussion: First, we conducted an Im-Pesaran-Shin (IPS) test to check for the presence of unit roots in the panel time series. Once the presence of unit roots was proved, we proceeded to estimate dynamic panel regressions. The estimated parameters exhibited statistical significance, and their signs aligned with the expected theoretical outcomes. The expansion of imports was found to have a positive impact on industrial employment; there was a 0.025% increase observed. Additionally, a one percent increase in value added by industrial activities would lead to a 0.37% increase in employment. Although the effect was smaller, an increase in R&D costs still had a significant impact on industrial employment, with a 0.037% increase observed. On the other hand, an increase in paid wages had a negative effect on labor demand. Specifically, a one-unit increase in wages would result in a 0.15% decrease in employment. Regarding the UEP, the results demonstrated its inverse effects on Iran's industrial employment. On average, each unit increase in the use of UEP corresponded to a 0.004% decrease in industrial employment. However, it is to be noted that the effect on employment was not evenly distributed among industries.
Conclusions and policy implications: In light of the declining trend in Iran's exports, it is crucial for policymakers to facilitate international trade, particularly exports. Considering that the use of UEP and an increase in imports have positive effects on the country's industrial employment, expanding foreign trade will not a threat to industrial employment in Iran; rather, it contributes to its improvement. Furthermore, to enhance Iran's position in the global arena, significant political decisions must be made regarding the country's international relations. The calculation of potential export volumes based on the current state of Iran's manufacturing industries does not indicate a favorable situation. Many of these industries heavily rely on oil production and contribute significantly to carbon pollution, which not only worsens the country's climate but also has potential international consequences in the future. Moreover, the continued production of such products with low-quality technology can lead to a decline in the country's overall production capacity. To address these challenges, it is essential for Iran to focus on increasing its industrial production capacity with medium and high technologies. This requires creating conditions to attract foreign direct investment, technology transfer, efficient utilization of skilled labor and new tools, all of which depend on establishing internal peace and security and correcting perceptions of stability among the local population, immigrants, and foreigners.

Keywords

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References

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The Journal of Economic Policy
Volume 17, Issue 33
September 2025
Pages 329-358

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