Document Type : Research Paper

Authors

• Faezeh baliagha ¹
• Zeinolabedin Sadeghi ²
• Sayyed Abdolmajid Jalaee ³

¹ Master Economic development and planning in Department of Economics, Faculty of Management and Economics Shahid Bahonar University of Kerman, Kerman, Iran

² , Associate Professor in Department of Economics, Faculty of Management and Economics Shahid Bahonar University of Kerman, Kerman, Iran

³ Professor in Department of Economics, Faculty of Management and Economics Shahid Bahonar University of Kerman, Kerman, Iran

Abstract

The decline in total factor productivity (TFP) poses a significant economic challenge globally, with resource misallocation among firms being a key driver. This study investigates the impact of resource misallocation on productivity in Iranian industrial workshops with ten or more employees, using data from the Statistical Center of Iran (2011–2020). Employing microeconomic data analysis, we assess physical productivity and value added across industries. Results indicate that the chemical, non-metallic mineral, and petroleum products industries exhibit the highest productivity and value added, while the leather, clothing, and machinery repair sectors perform the lowest. Eliminating production and capital distortions significantly improves high-yield industries, highlighting the need for resource redistribution. Policy recommendations include supporting low-yield industries, investing in research and development, enhancing energy and transportation infrastructure, and offering tax incentives to boost productivity and foster sustainable economic growth.
Introduction
Over recent decades, many countries, including Iran, have faced declining total factor productivity (TFP), contributing to slower macroeconomic growth. Recent studies emphasize the role of microeconomic factors, particularly the misallocation of resources among firms, in driving this decline (Gopinath et al., 2017). Resource misallocation reduces aggregate productivity by preventing the optimal allocation of production factors, such as labor and capital, across firms (Zhang et al., 2023). Efficient reallocation can enhance output without requiring additional inputs.
While existing research highlights the macroeconomic impacts of resource misallocation, there is a gap in understanding its effects on micro-level productivity, particularly in Iran’s industrial workshops. This study addresses this gap by analyzing the impact of suboptimal resource allocation on the productivity of industrial workshops with ten or more employees, using data from 2011 to 2020.
Research Question
How does suboptimal resource allocation affect the productivity growth of industrial workshops with ten or more employees in Iran?
Methodology
This study employs theoretical models, including Cobb-Douglas and CES production functions, to estimate total factor productivity (TFP) and assess the impact of resource misallocation. Key variables include labor wages, value added, physical capital, and industry-specific data (four-digit ISIC codes). Microeconomic data from the Statistical Center of Iran for industrial workshops with ten or more employees (2011–2020) were analyzed to evaluate productivity and efficiency. The analytical framework calculates physical productivity and compares actual output to efficient output to quantify the effects of distortions in resource allocation.
Results
The analysis reveals significant variation in total factor productivity (TFP) across industries after removing distortions. The chemical, non-metallic mineral, and petroleum products industries demonstrate the highest TFP, reflecting substantial misallocation in these sectors. The average physical productivity, absent distortions, is approximately 5 trillion IRR. Industries such as electrical equipment, unclassified machinery, and computer and electronics surpass this average, with productivity ranging from 60 to 110 trillion IRR. Conversely, industries like rubber and plastics, metal products, pharmaceuticals, textiles, tobacco, transportation, paper, wood, furniture, and beverages fall below the average, with productivity between 0.1 and 5 trillion IRR. The leather, clothing, and machinery repair sectors exhibit the lowest productivity, averaging 10 billion IRR, indicating a need for targeted interventions.
Production efficiency, measured as the ratio of actual to efficient output, peaked in 2013 at 76.82 million IRR, followed by 2018 (37.36 million IRR), 2019 (20.68 million IRR), and 2016 (17.02 million IRR). The lowest efficiency was recorded in 2011 (1.29 million IRR) and 2012 (9.51 million IRR), with an overall average of 22.06 million IRR, suggesting persistent inefficiencies throughout the study period.
Conclusion
This study examines total factor productivity (TFP) and the impact of resource misallocation in Iranian industrial workshops with ten or more employees from 2011 to 2020. Findings confirm that industries such as chemicals, non-metallic minerals, and petroleum products achieve the highest productivity when distortions are eliminated, while leather, clothing, and machinery repair industries lag significantly, with an average productivity of 10 billion IRR. The average physical productivity, free of distortions, is approximately 5 trillion IRR, though high-performing industries like electrical and computer equipment far exceed this (60–110 trillion IRR).
Production efficiency peaked in 2013 (76.82 million IRR) but remained below the period average (22.06 million IRR) in most years, with 2011 and 2012 showing the lowest performance. Resource misallocation, particularly in capital, consistently undermined industrial productivity, with 2013 exhibiting the greatest losses due to regulatory and investment inefficiencies. A notable TFP decline in 2014 (–6.91%) compared to countries like China and India underscores Iran’s structural challenges.
Eliminating investment-related distortions yields greater TFP improvements (e.g., 8% in 2016) than removing production distortions (3% in 2016). A strong correlation (r = 0.75) between these factors suggests that reforms in one area can enhance the other. To improve productivity, policies should prioritize efficient resource allocation, support high-TFP industries, reduce market entry barriers, promote small businesses, and curb monopolies. Investments in technology, workforce training, and innovation centers are critical, alongside modern management systems, improved energy and transportation infrastructure, and tax incentives for technology-driven industries. Continuous evaluation and stakeholder engagement are essential for effective implementation.
Future research could explore the impact of resource misallocation on productivity across Iran’s provinces, offering a regional perspective on industrial performance.

Keywords

• Total Factor Productivity
• Resource Misallocation
• Production Distortions
• Industrial Workshops
• Iran

Main Subjects

• modeling and simulation