Iran’s Total-Factor Productivity Near Zero

EghtesadOnline: Iran’s annual total-factor productivity index during the fiscal 2005-6 to 2016-17 hovered around zero, suggesting the neutral role played by productivity in the country’s economic growth.

News ID: ۷۸۳۹۲۹

10 September 2018

This is while, according to the objectives of the fourth and fifth five-year development plans (2006-11 and 2011-16 respectively), productivity should have accounted for 31.3% and 33.3% of economic growth in those years.

One of several types of productivity measured in the latest report by the National Iranian Productivity Organization, such as workforce productivity increased by 3.4% (using the Iranian year to March 2012 as the base year) during the Fourth Plan.

Citing figures released by the Statistical Center of Iran, NIPO’s report said a total of 23,378,613 people were employed in the fiscal 2017-18, registering an increase of 13.4% compared with 2005-6. This growth is only attributable to 2012-17, given the fact that the average growth in the employed population during 2005-12 was almost zero, Financial Tribune reported.

Despite the rise in the number of jobholders over the period, workforce productivity index during the Fifth Plan was almost zero, indicating that gross domestic product has increased along with the rise in workforce. More specifically, the number of employed population and GDP grew 1.5% during these years. In recent years, workforce accounted for 44% of Iran’s GDP.

Capital productivity shows how efficiently capital is used to generate output. An increase in capital productivity means that a unit of capital is producing more output than in the previous year, or that the same amount is being produced with lower capital inputs.

Iran’s capital registered an annual increase of 3.1% over the period under review. The rate stood at 2.25% during the Fifth Plan, almost half of the growth in capital it posted during the Fourth Plan, which was 4.57%.

The average growth in capital productivity index during the fourth and fifth plans and the period under review, i.e. 2005-17 were -1%, -0.7% and -0.9%, respectively. It is important to note that the average annual growth rate of consumption during this period was 4.3% more than the average annual growth of capital.

The intermediate consumption productivity index, the difference between gross output and net output, stood at -0.7% with oil, and -0.3% without oil between 2005-16. The highest decline in this index was registered for the fiscal 2009-10, which remained almost unchanged from the fiscal 2009-16.

Total-factor productivity, also called multi-factor productivity, is the portion of output not explained by traditionally measured inputs of labor and capital used in production. Total factor productivity is a measure of economic efficiency and accounts for part of the differences in cross-country per-capita income.

The rate of TFP growth is calculated by subtracting growth rates of labor and capital inputs from the growth rate of output.

TFP increased by 0.1% over 2005-17, while the country’s GDP saw a rise of 2.5% over these years. The average TFP growth over the years of fourth and fifth plans was 0.5% and -0.5%, respectively.

A Sectoral Review

The agriculture sector registered positive growth in productivity over the long run. TFP of agriculture sector in the fiscal 2016-17 was 3%. The sector registered positive growth between 2005-16, except for 2008-9.

The average annual growth of TFP of agriculture was 0.01% during 2005-10 and 2.9% during 2011-16. Workforce productivity of agriculture sector was at 5%, capital productivity at 1.5%, intermediate consumption productivity at 0.9%, TFP average annual growth over was at 1.6%, average annual growth of TFP in oil and gas sector was 2% during 2005-16.

Workforce productivity of the mining sector was 3.5% and the sector’s capital productivity was 5.2% in this period, while the average annual growth of TFP of mining sector was 4.2%.

The average annual growth of TFP was 2.1% for industrial sector, -0.4% for transportation and warehousing sector, and 2.59% for water, electricity and natural gas TFP growth stood.

The average annual growth of TFP was -3.56% (the lowest among all economic sector) for construction sector and 13.4% (the highest of among all sectors) for the communications sector during the period.

TFP of economic activities classified as “other services” was -0.14% over the period.