Business Climate and Production Dynamics Nexus: Empirical Evidence for Bulgarian Manufacturing Sector

The paper presents selected results from an empirical analysis of the interrelation between the industrial dynamics and business climate in industry for the period 2009-2017 in Bulgaria. A vector auto-regression model has been estimated for this purpose using variables for the indexes of production volume and business climate estimated on monthly basis. Data from the short-term business indicators as well as business surveys in industry conducted by the Bulgarian National Statistical Institute have been used. New insights about the hypothesis for positive effects of business climate expectations are suggested concerning the industrial production dynamics during this period. Evidence is provided in respect of the anticipated favorable effect of the business climate, as perceived by the managers in the industrial sector, on the production volume shifts observed at lag one month. Similar short-run effect is found in support of the hypothesis that improved expectations of the industrial managers about the business climate are systematically induced by an expansion of the industrial production.