APPENDIX I Data Sources and Methodology
25. The source for real GDP and investment data for Iran is the latest Central Bank of Iran database, and for the rest of the countries is the IFS database. The source for employment data for 1960–90 is the ILO database—1956, 1966, 1976, and 1986 census, and the source for employment data after 1990 is the Central Statistical Office of Iran annual census. The growth accounting exercise follows the methodology described in Barro and Sala-i-Martin’s Economic Growth, Chapter 10 (1995). The capital stock depreciation rate is 4.9 percent, consistent with the estimates of the Central Bank of Iran, and the initial capital stock is determined through the “rough-guess” method suggested by Barro and Sala-i-Martin. The average annual rate of return of capital is 7 percent, the long-term international average rate of return estimated by Siegel (1998). The average years of schooling of the labor force are drawn from the Barro and Lee database for every 5 years, and extrapolated for the periods within each 5 year period. Human capital is estimated in terms of average years of schooling following the standard definition used by Lucas (1988).
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Prepared by J. Bailén.
The quantification of the contribution of education to growth depends on the specification of the production function.
Since the relative price of oil GDP increased by an average of 3 percent per year during 1960-2002, the ratio of nominal oil GDP to total GDP increased from 12.8 percent to 22.1 percent, even though real oil output increased at a slower pace.
This assumption is made because of the difficulty to measure the productivity of public capital goods in Iran.
Other proxies of the quality of human capital, such as the increase in productivity of workers—measured by their relative salaries, presumably reflecting relative education attainment—are not available in Iran.
The TFP growth estimates are subject to measurement errors of physical and human capital. However, using the same growth accounting methodology, the TFP growth estimates for Iran are systematically lower than in most other developing countries.
With alternative specifications of the model, such as using changes in real money, the relationship between financial deepening and growth becomes statistically insignificant.
Despite recent reductions in import taxes and non-tax barriers, Iran’s trade regime is very restrictive: the average (unweighted) tariff rate in 2002 was 30 percent, the 11th highest tariff rate out of 193 surveyed countries (Source: Trade Restrictiveness Ratings and Average Tariffs, Policy Development and Review Department, IMF).