Measurement of Total Factor Productivity Using anInput-Output Approach

The aim of this paper is to investigate the total factor productivity (TFP) growth through economic sectors in Iran with a major concentration on the fourth development plan in the period of 1986-2006 using static comparative analysis, an input-output approach. In this approach,TFP is decomposed into three inputs: labor, capital, and intermediate. The data base includes five national input-output tables for the years 1986, 1991, 1996, 2001, and 2006, that are all constructed or estimated by the Iranian Center of Statistics. The tables are reduced into ten main sectors and calculated on the basis of fixed prices.
Empirical results show TFP growth is not enough to reach the TFP growth rate aimed in the economic development plans and there is a long distance to a productive economy in Iran. The results also show, although TFP and labor productivity growth are in the same direction, capital has no important role in output and TFP growth. Moreover, the outcome of this study shows the importance of intermediate input productivity on TFP growth (that is ignoredin all previous studies). An evaluation of the fourth development plan shows that TFP growth in the first two years of the plan is far from the aimed productivity especially for manufacturing, business, and transportation. It is also found negative for mining, construction, and banking.