Review

Determinants of profitability in Iranian manufacturing industries: Further evidence, using a dynamic panel data approach

¹*Somayeh Azami and Ebrahim Hosseini Nasab

¹Assistant Professor, Razi University, Faculty of Social sciences, Department of Economics, Kermanshah, Iran.
²Associate Professor of Economics, Tarbiat Modares University, Faculty of Management and Economics, Department of Economics, Tehran, Iran.

*Corresponding Author's E-mail: sazami_econ@yahoo.com

Accepted November 18, 2013

Abstract

This paper is intended to study the determinants of profitability of manufacturing industries, based on the Iranian experience. The focus is on R and D and advertisement expenditures as well as the degree of concentration as the main determinants of profitability. The theoretical underpinning of the paper is provided by the so called Structure-Conduct-Performance paradigm, discussed rather extensively in the literature on industrial economics. The methodology consists of a dynamic panel data procedure. The data covers the Iranian plants employing ten or more persons, aggregated at a manufacturing industry sector level for 141 manufacturing industry sectors carrying four digit codes and observed over the 1994-2007 period. Our findings indicate that the non-price variables of R and D expenditures and advertisement costs have a significantly positive effect on profitability (performance). The effect of increases in concentration (structure) on profitability varies depending on industry size as measured by investment expenditures. The degree of concentration on profitability has a significantly positive effect on profitability in the large manufacturing industries or heavier investment consumer manufacturing industries. But, profitability decreases with concentration in the small manufacturing industries. The paper has draws implications for pursing a more active advertisement and R and D policy in manufacturing industries.

Keywords: Concentration, R and D expenditures, Advertisement costs, Profitability, DynamicPanel data procedure. JEl classification: L₁₀, M₃₁, C₂₃, O₃₂