Investigating the Effects of Production and Consumption Inflation on Investment in Iran's Agricultural Sector Using the NARDL Approach

Document Type : Research Paper

Authors

Assistant Professor of Agricultural Economics, Agricultural Planning, Economic and Rural Development Research Institute (APERDRI)

10.22034/epj.2025.20921.2536

Abstract

Purpose: The response of the agricultural sector to the positive factors of investment is slower than other economic sectors due to the special conditions governing the production process of its products. It seems that the effectiveness of investment in the agricultural sector cannot be equal to and symmetrical with positive and negative factors. Despite the fact that inflation is considered as a stimulus for investment, it seems that, due to the high inflation rate and its high fluctuation in Iran over the last four decades, there has been no high alignment between agricultural investment and the inflation rate.The widespread governance of various types of uncertainty in Iran's agricultural sector is an important issue that can have a special role in the investment process in this sector. The main questions of this study are ‘what has been the effect of the increase and decrease of the inflation rate on investment in Iran's agricultural sector?’ and ‘what has been the effect of farm prices on investment in the agricultural sector?’ In this regard, the main goal of the present study is to investigate the effect of the agricultural producer price index and the asymmetric effect of the consumer inflation rate on the amount of investment in Iran's agricultural sector.
Methodology: The study method is the library survey of documents, and the statistics are based on the annual time series obtained from the official statistical sources of the country (the Central Bank of Iran and the Statistics Center of Iran). The time period considered in this study is 1990-2021. The uncertainty in inflation rate here means fluctuations in the consumer inflation rate. The current study is of the causal type and aims to identify how the uncertainty of the inflation rate and other factors affected the amount of investment in Iran's agricultural sector during the past years. The follow-up of this issue has been done by using the Nonlinear Autoregressive Distributed Lag (NARDL) and estimating the coefficients of variables related to investment. The Microfit software was used to estimate the desired regression models.
Findings and Discussion: The high value of the Agricultural Producer Price Index (APPI) compared to the Food and Beverage Consumer Price Index (FCPI) in the 2010s does not necessarily mean an increase in the profitability of agricultural production. It may have been due to the increase in the government’s paying more subsidies to the consumers of food and beverages. The research variables become stationary after at most one differentiation. Based on the calculated critical values and the F statistic, the existence of a long-term equilibrium relationship between the variables of the asymmetric model at all the levels is confirmed. According to expectations in 1990-2021, on the one hand, agricultural producer price index (APPI), agricultural value added (VAA) and agricultural net capital stock productivity (KP) have significant and positive effects on the amount of investment in the agricultural sector of Iran. On the other hand, the real exchange rate (RER), the interest rate of facilities paid to the agricultural sector (IR) and the uncertainty of the inflation rate (INF) have had significant and negative effects on the amount of agricultural investment. The results show that the coefficient of the error correction sentence is negative and significant (-0.245). This indicates that the short-term imbalance in the investment of the agricultural sector of Iran will reach the long-term balance at a suitable speed (about 4 years). According to the results of the Wald test, the effect of increasing and decreasing inflation rate fluctuations on investment in Iran's agricultural sector is asymmetric in the short and long terms. The model has no structural failure, the stability of the model has been confirmed in the long term, and the coefficients are reliable.
Conclusions and Policy Implications: Iran's economy has always experienced high inflation rates in the last four decades. High inflation and the resulting uncertainty have been effective in the movement of financial resources and investment among economic sectors and the related activities. The results of the model estimation showed that, firstly, in the studied period (1990-2021), the consumer inflation rate had a significant effect on the amount of investment in Iran's agricultural sector, and secondly, this effect was asymmetric. The asymmetric effect of inflation on investment in the country's agricultural sector is an important issue that should be considered in investment policies in this sector. In order to increase investment in the agricultural sector, besides the necessity of improving the productivity of capital, stabilizing the exchange rate and reducing the interest rate of agricultural facilities, it is suggested to avoid suppressing the price of agricultural products, increase the price support for farmers and consumers, and reduce the inflation in the economy.

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Main Subjects

References

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The Journal of Economic Policy
Volume 17, Issue 34
August 2025
Pages 117-155

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