Measuring System Entropy Generation in a Complex Economic Network (The Case of Iran)

An economic system is comprised of different primary flows that can be captured in macroeconomic models with complex network relations. Theoretically and empirically in this system, weak substitution or complementarity of environmental materials, like energy and other production factors such as capital, is undeniable. This is an effective critique on neoclassical economics. In this paper, we view economy as a complex thermodynamic system in order to calculate entropy generation, specifically the trend of entropy production in Iran over time. Entropy can be measured as the amount of waste and pollution produced by a system based on Georgescu-Rogen’s view. Using a conceptual model, we show the basic flows in a macroeconomic network (government, households, firms and financial sector), by focusing on the amount of waste and other entropy generators and show how to calculate the overall entropy for an economic system. Furthermore, we demonstrate this approach using a mathematical model and literature from ecology and macroeconomics of Iran economy as a case study. Finally, by using statistical data from the World Bank, we show the three important indices of a system- growth, development and entropy valuesthat increased in Iran during 1970–2014. As it is shown in results, the economic entropy of Iran is increasing.