New Economy and Productivity in Iran

This paper studies the relationship between the components of new economy and total factor productivity (TFP) in Iran using annual data over the period 1959 - 2003. A translog flexible production function is specified and estimated in order to compute the total factor productivity. Then the effects of the components of new economy such as Research and Development (R&D), FDI, openness, the rate of inflation, capital, and structural change on the TFP growth are investigated using the cointegration VAR approach. The findings show that R&D, openness, and capital affect positively TFP growth and the rate of inflation and structural change affect negatively on TFP growth. Furthermore, the components of new economy such as R&D and openness of the economy are the major determinants of the TFP growth in the economy.