Efficiency Analysis on Iran's Industries

In Iran’s 4th five-year economic development plan it has been assessed that the productivity contribution in economic growth to be 2.5 percent and it can be materialized through increases in efficiency. Therefore, this study seeks to answer this question whether industrial efficiency, as an engine of economic growth, has had any growth during the 4th five-year economic development plan of Iran. In this study the stochastic frontier production function is estimated to determine efficiency in Iran’s industry as a whole. For purposes of comparison, also, Iran’s industry is categorized into three different sizes of firms, and two different types of ownership. The results show that efficiency level is the highest for the small firms group at 68.1 percent and the lowest for large firms group at 52.5 percent. Average efficiency level was approximately constant for small firms, rising for medium sized firms and decreasing for large sized firms over the time period. The efficiency level is higher for the private firms group at 86.8 than for public firms group at 46.1 percent. The average efficiency level is rising for both private and public firms during the time period. The efficiency was 41 percent in 2009 for Iran’s industry as a whole and it has grown from 36 percent in 2003 to 45 percent in 2008. It shows efficiency has roughly increased 1.5 percent annually and also Iran’s industry is becoming more efficient and competitive. In spite of efficiency growth, the level of efficiency is still low at 41 percent. The results show that the industries are not competitive enough.