The Effect of Credit Policies on the Value Added in the Iranian Manufacturing Sector

To motivate the growth of the economic sectors in question, the Iranian government has at its command various means of direct intervention and economic policy-makings. The development of both manufacturing sector and industrialization has been the government's main long-standing objective‌. However, the economic structure in Iran has imposed severe restrictions on the application of the quantity monetary policies, and in the last few decades the means of quality monetary policies like bank credits have played a significant role in controlling the economic sectors. In the case when monetary and financial markets undergo regression, these bank credits are considered among the main sources of financing manufacturing businesses.
This article deals with the relationship between the credit policy in the manufacturing sector and the other monetary and financial policies. The use of the model-building method of VAR based on long-term convergence besides the constituents of error correction provide definite and clear results of the relationship between the bank credits and the value added in the manufacturing sectors. On the whole, the results suggest that there is a very strong positive relation between the bank credits and the value added in the manufacturing sectors which, in turn, shows the intensive dependence of industrial production on this policy-making variable adopted by the government.