Investigating Domestic Value Added and Imorted Vale Added in Gross Export of Iran for Selected Years by Hypothetical Extraction and Vertical Specialization

Purpose: Energy Despite the existing various activities in Iran and in important global corridors, the trade balance without oil is always negative. Although the trade balance reflects the state of trade to some extent, it cannot comment on trade in value added. Since trade in value added has become increasingly important today, the main purpose of this study is to answer the following questions: ‘How can Iran change the approach of its trade?’, ‘From which activities is domestic added value in gross exports obtained and how is its trend?’, ‘How is the gap between the share of exports and the share of value added in gross exports by each activity?’, ‘How is the vertical specialization in Iran and how is its trend?, and ‘In general, how is Iran's economy related to the international economy?’
Since, input -output tables include all the activities of an economy and show trade and added value by each activity, this research uses those tables for 1999, 2004, 2010 and 2016 (the last available table) released by the Central Bank to calculate DVA and VS of Iran over time.
Methodology: To calculate the domestic value added in gross exports (DVA) and vertical specialization (VS), we need to plot internal input-output tables in constant prices. Then, the standard Leontief quantity model is used. To obtain DVA, the following equations are used.
Findings and Discussion: Based on the results, Table 1 can be analyzed in two ways, in rows and in columns. When they are analyzed in columns, the activities can be classified in terms of upstream and downstream, and structural changes can be visualized when they are analyzed in rows.
Iran’s major exports has invariably included crude oil, natural gas, and petroleum products. In 1999, planting crops, agriculture, horticulture, textile production and animal breeding were of relatively high exports.
In 2004, the activities of textile production and animal breeding were no longer important export products; there were only crude oil, natural gas and petroleum products. In 2010, the production of chemical and pharmaceutical products was added to the important export activities. In 2016, basic metals, food and beverage were produced more.
Regarding the trend of domestic added value in gross exports (DVA), it was on a downward trend; it decreased from 97% in 1999 to 93% in 2016. This means that, in 1999, for every 100 Rials of gross export, 97 Rials were domestic exports of Iran's economy. In 2016, this amount decreased to 93%. It means that the self-sufficiency of Iran's economy has decreased to some extent, but it is still significant.
In 1999, the highest amount of DVA (except for services) respectively belonged to crude oil and natural gas extraction, crop planting, animal breeding, textile production, and non-metallic mineral products. In 2004, it belonged to the activities such as extraction of crude oil and natural gas, planting of crops, production of petroleum products, production of non-metallic minerals, production of basic metals, production of metal products, and breeding of animals.
In 2010, the highest amount of DVA belonged to the extraction of crude oil and natural gas, the production of petroleum products, the planting of crops, the production of chemical and pharmaceutical materials, and the production of non-metallic mineral products. In 2016, it belonged to the extraction of crude oil and natural gas, the production of chemical and pharmaceutical materials, the production of petroleum products, the planting of crops, the production of basic metals, and the breeding of animals.
The main imports of Iran's economy generally had a certain trend in all the studied years. The imports regarded activities such as construction, vehicles, production of food and beverages, production of basic metals, planting crops, materials and chemical products, and machinery and equipment.
In general, the trend of VS (imports for gross exports or so-called vertical specialization) was upward and increased from 3% in 1999 to 7% in 2015; This means that, for every 100 Rials of gross export, the direct and indirect import requirement increased from 3 Rials to 7 Rials. In other words, in these years, Iran's vertical specialization increased with the international economy.
In 1999, the most vertical specialization respectively belonged to the activities of basic metal production, machinery and equipment production, chemical and pharmaceutical products production, mining, and planting of crops. In 2004, it belonged to the production of chemical and pharmaceutical products, production of basic metals and production of petroleum products, and production of machinery and equipment, respectively.
In 2010, it belonged to the activities of crude oil and natural gas extraction, production of chemical and pharmaceutical products, production of basic metals, and production of machinery and equipment. In 2016, it belonged to the production of chemical and pharmaceutical products, production of basic metals, production of machinery and equipment, and production of food and beverages, respectively.
Conclusions and Policy Implications: In general, the degree of integration of Iran's economy with the international economy is very low; Iran's economy is largely self-sufficient. The connection of Iran's economy to the international economy is through resource-oriented activities, and its vertical specialization is by chemical and pharmaceutical production, basic metal production, and crop planting.
According to the findings, the activities of leather production, basic metal production, textiles, and machinery and equipment production create more added value compared to their export share.
Considering that Iran has a suitable geographical position, in accordance with the recommendations of the Global Production Network theory (GNP), it can form a production network (by trade) while becoming a hub in the fields of source-oriented activities and, by importing basic inputs, develop through activities such as chemical and pharmaceutical production and production of metals, machinery and equipment.