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 obstacles to the sustainable growth of Iran’s economy. This paper aims to assess the policy shifts after 2007 by conducting a comparative analysis of productivity performance and the cost-push inflation mechanism in Iran’s economy. The central question is whether these changes merely resulted in a decline in performance levels or triggered a fundamental structural break in the economy’s long-term trends. Using time-series data for the period 1997–2023, a three-layer analytical strategy was applied: mean comparison tests, the Chow structural break test, and a linear regression model with interaction terms to distinguish three distinct periods (before 2007, 2007–2011, and after 2012).The findings reveal that post-2007 shocks had asymmetric and concentrated effects. The main locus of this transformation was capital productivity, while labor productivity showed no structural break in any sector and maintained a degree of inertia and relative stability. The analysis of the inflation mechanism further demonstrated that the price liberalization policy in the initial phase (2007–2011), by weakening firms’ pricing power under recessionary conditions, reduced the pass-through from producer inflation to consumer inflation. Consequently, the burden of the policy shock fell mainly on the production sector, leading to a decline in productivity.These results indicate that price liberalization not only failed to achieve its intended objectives but also weakened capital productivity and exacerbated the vulnerability of the production sector. This represents a strategic misstep in the path toward realizing a resistance economy and highlights the urgent need for a reconsideration of macroeconomic policies.