Technological Change and its Relationship with Total Factor Productivity in Iran's Petroleum Refineries

Abstract

Nowadays, using appropriate technologies in order to increase productivity of production factors can be resulted in optimal factors employment and production enhancement in factories. Technological change is considered as one of the main sources of productivity growth. The purpose of this paper is to analyze the various aspects of technological change and their relationship with total factor productivity in Iran’s petroleum refineries. In order to achieve this goal, we used the econometric method to estimate the cost function. This method seems useful to estimate the structure of factors demand, considering changes in factors prices and technology status. We estimated a translog cost function as well as equations system of cost share, using Seemingly Unrelated Regressions (SUR) approach from 1982 to 2012. The results show that the average rate of technological change was -0.482 percent over the study period. It means that over time, the cost growth rate of production units was decreased mainly due to technological change. Furthermore, the results indicate that technological change was biased towards the use of more labor and material, while it saved more capital and energy. Also, based on the estimation results, we decomposed total factor productivity growth rate into the contributions of technological change and economies of scale. Decomposition results show that the share of technological change in the productivity growth is greater than that of scale economies.