The effect of research and development investment on the industrial sector productivityin Iran

Theoretically, productivityis recognized as a production factorwhich affect on the economic growth alike as other production factors. Investment in research and development (R&D) affects on the total factor productivity (TFP) in economy. The main objective of this paper is to investigate the roleof investment in R & D on TFP increasingin two-digit industry codes in Iran.Cross-sectional data is used on two-digit industry code (ISIC) for nineindustries during time period from 1374 to 1387. Research and development expenditures alongside with other variables such capital-output ratio, the openness degree of the economy, effective foreign exchange rate, the share of private ownership, skilled manpower, foreign raw materials consumption share, and industry profitability are implied in econometrics model to analyze their effects by panel data approach.The results indicate that in the period of study, skilled manpower, capital-output ratio, industry profitability, foreign raw materials consumption share, the openness degree of the economy, the share of private ownership, effective foreign exchange rate, all by two lags in the model, but research and development expenditures with three lags have a positive effect on total factor productivity (TFP) in various industries.In this regard, the share of private ownership has the most effect on total factor productivity. Also, the higher effect of R & D on TFP is in chemical products, petroleum, rubber, plastics, and fabricated metal products, machinery and equipment industries.