The Sources of Economic Growth in Iran’s Economy

Abstract. This paper estimates the shares of Total Factor Productivity Growth (TFPG), labor accumulation, and capital stock accumulation in Iran’s economy, and analyzes the time trend of the TFPG over the course of 1360-1392 of the Solar Hijri calendar (approximately equal to the 1981-2013 of the Gregorian calendar). Few studies have already been carried out for estimating sources of economic growth in various countries and different economic sectors. Nevertheless, little attention has been paid to Iran’s economy in recent years. After testing for the stationarity of the variables using Dickey-Fuller tests, this study estimates an aggregate production function for Iran’s economy using times-series econometric methods. The results suggest that the production structure of Iran’s economy is more capital-intensive than being labor-intensive. In fact, the elasticities of production with respect to capital and labor have been 0.59 and 0.41, respectively. The findings show that the average annual growth rate of TFP has roughly been 0.5% over the study time period. The other results imply that the average contributions of TFPG, labor accumulation and capital accumulation in Iran’s economic growth have been 15%, 30%, and 55%, respectively. As a result, it could be inferred that the performance of Iran’s economy in terms of long-run, economy-wide productivity growth has been weak compared to that of other developed and developing countries, in most of which TFPG possesses relatively greater shares in their economic growth.Keywords. Iran, Sources of economic growth, Aggregate production function, Capital accumulation, Employment.JEL. O47