The Analysis of productivity of the Iranian Economy

Exchange Low growth of productivity is one of the most important challenges of the Iranian economy. A growth model based on productivity improvement is the key for long-run sustainable growth of Iran. The main subject of the current research is the analysis of the TFP of the Iranian economy over the period of 1989-2014. To this end, first the production function is estimated and the TFP is calculated within the framework of growth accounting. Next, the potential output and output gap, are calculated. Using a neoclassical growth model, the role of policy variables and other determinants of TFP growth are analyzed. The findings of the study indicate that during most of the period, the actual output has deviated from potential output, mostly due to the adoption of expansionary monetary and fiscal policies. This, in turn, has led to the acceleration of inflation and created inflationary pressure in the economy. In the subsequent sections, an adjusted neoclassical growth model is estimated, a TFP growth model is derived and the coefficients of expansionary variables of total factor productivity growth are estimated.
The findings also indicate that "openness to trade", "exchange rate gap" (the ratio of market exchange rate to the official rate), and "government development expenditures" have positive and significant effect on TFP growth, while "government current expenditures" (adjusted with GDP deflator) and the "sanctions" have negatively affected TFP.