Modeling the Exchange Rate Vulnerability Index: A Novel Approach for Assessing Resilience and Analyzing Structural Changes in Iran's Economic Sectors (2004–2021)

The present study analyzes the structural transformations in the exchange rate vulnerability of Iran’s economic sectors over the period 2004–2021 (1383–1400). Given that persistent exchange rate volatility remains one of the enduring challenges of the Iranian economy, identifying and monitoring structural weaknesses against such shocks is essential. Accordingly, this research employs an Input–Output (I–O) framework and introduces the Exchange Rate Vulnerability Index (ERVI) to measure sectoral sensitivity. The study’s primary innovation lies in two dimensions: First, it dynamically integrates weighted import dependency with the strategic role of each sector within the domestic production network (via backward and forward linkages). Second, it enhances methodological precision by harmonizing sectoral classifications and applying the Double Deflation method to convert I–O tables into constant 2011 (1390) prices. Empirical findings based on real-term data reveal that the core of economic vulnerability in Iran has undergone a profound transformation—shifting from basic and infrastructural industries with broad domestic linkages in 2004, toward service and energy sectors by the mid-2010s, and finally to producers of capital and durable goods by 2021. Results for 2021 indicate that Iran’s vulnerability does not necessarily stem from direct imports of final goods, but rather from the high dependence of complex industries on domestic supply-chain bottlenecks characterized by strong backward linkages. This dynamic landscape highlights the necessity for a policy shift from simple import controls toward managing production flows within the intermediate and capital‑goods segments of the economy.