The Role of Total Factor Productivity Growth in the Non-Oil Sector Growth of the Iranian Economy

The aim of this study is to investigate the share of total factor productivity growth (TFPG), labor force growth and physical capital growth on the value added growth of non-oil sector by applying the Cob-Douglass production function during the third, fourth and fifth development plans before the Islamic revolution of Iran (1342-1356), and during the first, second, third and forth economic, social and cultural development plans of I.R.IRAN (1368-1386). The results show that the TFP growth rate and the value added growth rate of non-oil sector during the period of 1342-1356 (1/5% and 10/2%) and 1368-1386 (2/4% and 5/9%), due to the lack of synthetic method (creating the new capacities and increasing the productivity of presented capacities simultaneously), have the severe fluctuations, respectively. Also the sources of the growth of the non-oil sector Value Added of Iran’s economy during 1342-1356 are physical capital and labor force growth, respectively. In other words, the non-oil sector value added growth rate of Iran has conformed from the exogenous growth model in this period. But the growth sources of the non-oil sector value added during 1368-1386 are physical capital, TFP and labor force growth rate, respectively, which the reason of this object is noticeable decreasing in physical capital growth. It seems that the basic factor of low share of the TFP growth in non-oil sector value added growth rate in Iran’s economy is due to the choices of incorrect policies (state control of wages, interest rate, exchange rate, energy price and price of other factors of pproduction), that distort the relative price factors from physical comparative abundance of factors.