Sources of Iranian Labour Productivity

Abstract

This study presents a model capturing sources of Iranian aggregate labour productivity using annual time series data from 1960 to 2002. Labour productivity in this model is determined by real net capital stock, information technology and telecommunications (ITT) and trade openness. Empirical estimates indicate that policies aimed at promoting various types of investment and trade openness, which generates technology spillovers, can improve labour productivity. A substantial rise in productivity can not be achieved unless the economy increases its stock of capital in both ITT and non-ITT sectors, and industrial protectionist policies are reversed.

Keywords:

• Labour productivity
• economic growth
• Iran

Keywords:

• JEL CLASSIFICATIONS:
• C22
• N15
• O47

Notes

Notes

1. Real net capital stock of capital (K) is calculated by K _t  = K _{t −1} − φ _t  + I _t , where φ _t denotes the depreciation of capital in year t (published by Central Bank, 2003), I _t is real gross fixed capital formation in year t (obtained from Tabibian et al., 2000 and World Bank, 2004). K in 1960 (the base year) is calculated by assuming that ICOR = 2.5 (where ICOR is an acronym for incremental capital-output ratio). According to Shahshahani (1978), Iran's ICOR was 2.5 around 1960.

2. Previous studies (e.g., Madden and Savage, 1998) have also used total number of telephone lines as a proxy to capture the impact of ITT on labour productivity.