Energy consumption and total factor productivity in Iran's industrial sector

In this paper, the effects of energy consumption on the total factor productivity (TFP) have been examined in the industrial sector in Iran. For this purpose, FarPrimont's TFP index and its decomposition into different efficiency components have used. The results of a vector autoregressive model in the form of panel data (PVAR) show that the null hypothesis that energy consumption is not the Grange cause of TFP in the industry sector is rejected. However, the null hypothesis that TFP cannot be the Granger cause of energy consumption is not rejected. Therefore, there is a one-way causality relationship between energy consumption to TFP in Iran's industrial sector. Also, the results of the impulse-response of two energy consumption (EI) and TFP show that a shock of one standard deviation on the energy consumption can increase the TFP of the industry sector for up to two periods. However, after that the negative impact of energy consumption on TFP gradually decreases.