Evaluating the Decomposed Productivity Growth Rate in the Iranian Automotive Industry with Emphasis on Technical Efficiency and Scale: A Frontier Approach

Mirababazadeh, Nadia; Noraniazad, Samaneh; Khodadad Kashi, Farhad

doi:10.30465/ce.2025.51293.2016

Evaluating the Decomposed Productivity Growth Rate in the Iranian Automotive Industry with Emphasis on Technical Efficiency and Scale: A Frontier Approach

Document Type : Scientific-research

Authors

nadia mirababazadeh ¹

samaneh noraniazad ²

Farhad khodadad kashi ³

¹ Assistant Professor of Economics, Faculty of Management and Economics, Payame Noor University, Tehran, Iran

² Assistant Professor of Economics, Faculty of Management and Economics, Payame Noor University, Tehran, Iran.

³ Professor of Economics, Faculty of Management and Economics, Payame Noor University, Tehran, Iran

10.30465/ce.2025.51293.2016

Abstract

The rate of productivity growth and the optimal level of efficiency are key determinants of firms’ market share sustainability in the economy, particularly in international trade. The Iranian automobile industry, however, has suffered from low productivity growth and weak efficiency performance over the past decades, largely due to state ownership and government-led management. This study evaluates productivity growth in the Iranian automobile industry, with a focus on technological progress and scale efficiency. To achieve this, we employ decomposable frontier production functions using the Kumbhakar and Lovell model, applied to four-digit ISIC data from 2002–2020. The findings reveal that technological progress, with a value of 0.017, accounted for the largest contribution to total factor productivity growth, while scale efficiency, with a value of -0.042, exerted a negative effect. Moreover, the negligible contribution of technical efficiency (0.006) suggests that although production structures have partially relied on technological advancement, managerial efficiency and scale optimization remain significant challenges. In addition, government-imposed pricing policies have reduced firms’ incentives to improve efficiency and productivity growth. Accordingly, the study recommends reforming the pricing system and establishing a transparent, competitive framework to strengthen firms’ motivation for productivity enhancement

Keywords

Decomposed Productivity Growth Rate

Technical efficiency

Technological progress

Scale efficiency

Frontier Approach

Subjects