Structural Breaks in Productivity and Inflation in Iran’s Economy: An Analysis Before and After the 2007 Policy Shocks within the Framework of the Resistance Economy

Low productivity has posed serious challenges to sustainable growth in Iran’s economy. This paper evaluates policy changes after 2007 by comparing productivity performance and the mechanism of cost-push inflation. It asks whether these changes merely reduced performance levels or triggered a fundamental structural break in long-run economic trends. Using time-series data from 1997 to 2023, the study applies three analytical methods: mean comparison tests, the Chow structural break test, and a linear regression model with interaction terms to distinguish three periods: pre-2007, 2007–2011, and post-2012. The findings show that the shocks following 2007 had asymmetric and concentrated effects, mainly on capital productivity. By contrast, labor productivity remained relatively stable across sectors, with no evidence of a structural break. The inflationanalysis further indicates that price globalization in 2007–2011 weakened firms’ pricing power under recessionary conditions and reduced the pass-through from producer to consumer inflation. As a result, the production sector absorbed most of the shock, leading to lower productivity. Overall, the evidence suggests that price globalization failed to achieve its intended objectives, weakened capital productivity, and increased the vulnerability of the production sector, underscoring the need to revise macroeconomic policy within the framework of a Resistance Economy.