The Effects of Government Size on Labor and Capital Productivity in Agricultural and Industrial Sectors of Iran

The effect of government size on inputs productivity in economic sectors is a measure that determines the government success in allocating resources. This article aims to measure the effect of government size on labor and capital productivity in agricultural and industrial sectors during 1350-1385 periods in Iran. Ratio of Government employees to total employees, was use d for determining the effect of government intervention in labor market and ratio of total cost of government to total costs in economic activities was used as a criterion for capital market. The relationship between these criteria and labor and capital productivity were estimated with Auto Regressive Distributed Lag method. The results indicated that there was an indirect relationship between government size and labor productivity in agricultural and industrial sectors but it has no significant effect on capital productivity in industrial sector. Therefore, it was suggested that more emphasis should be placed on investment in agricultural sector especially on labor force to utilize new technologies. In industrial sector government must increase investment on infrastructure.