Potential Output and Production Gap in Small Industries of Iran

The production gap is calculated by the difference between potential and actual production. It shows the amount of using production factors in the process of production. The more the production gap of an enterprise is bigger, the use of production factors and the actual capacity of production are less, and the productivity of factors is down. For calculating the production gap, the potential production should be estimated at first. There are various methods for the calculation of potential production, and the most famous of them are the methods of production function and statistics. In this research , the Intriligator’s method which is based on Cobb-Douglas production function is used for estimation of potential production of small industries of Iran over the period 1993-2015. The result of paper shows that there is a positive production gap in small industries of Iran and it is concluded that the potential production capacities of enterprises are not used perfectly and the presence of economic recession is in the industries of Iran is vivid.