Investigating the Shocks of Real Sectors of the Economy on the Welfare Index in the Iranian Economy

Abstract

The vector auto regression model was used to investigate the effect of real sector shocks on the social welfare in Iran during the period of 1980-2019.The results of the impulse response test showed that the Amartya Sen welfare index showed a rapid response to the shocks of total factor productivity growth in the first period, which had a zero effect over time. The utility-oriented welfare index reacts positively to the shocks of total factor productivity growth in the first period, which has decreased from the second period and has become negative even from the fifth period. Amartya Sen Welfare Index and utility-oriented welfare index shows a positive and rapid response to real GDP per capita shocks in the first period, which is adjusted over time, and from the seventh period. The Amartyasen Welfare Index reacts negatively to oil revenue shocks and is very weak. If the utility-oriented welfare index shows a positive response in the first period, but in the following periods, its effect is adjusted and remains partially positive. Amartya Sen welfare index shows a leap and positive response to employment shocks from the first period and its trend continues and from the fifth period it continues in a positive and stable manner and the utility welfare index has a similar trend to Amartya Sen welfare index. Discussion: In the Iranian economy, employment leads to increased social welfare, while in the long run, oil revenues, GDP per capita and growth in total factor productivity have led to a decrease in social welfare. Therefore, in the Iranian economy, creating employment and reducing unemployment is the most appropriate factor to increase welfare.