Intangible Investment and TFP: Evidence from Small and Medium-Sized Manufacturing in Iran

EsmaeilySadrabadi, Forough

doi:10.48308/jep.2024.233776.1155

Intangible Investment and TFP: Evidence from Small and Medium-Sized Manufacturing in Iran

Document Type : Original Article

Author

Forough EsmaeilySadrabadi

Assistant Professor of Economics, Department of Economics, Faculty of Humanities & Social Sciences, Ardakan University, Ardakan, Iran

10.48308/jep.2024.233776.1155

Abstract

Intangibles refer to capitals like machinery or structures, in the sense that creating them requires foregoing consumption today (investment) to achieve more output in the future. However, unlike machinery or structures, intangibles lack a physical presence. This type of investment has had a significant impact on increasing productivity for industries in Iran. On the other hand, since small and medium industries make up more than 80% of all industries, the effect of this type of investment on the TFP of these industries is of paramount importance. To measure intangible investment, the CHS approach has been used for both groups of different sizes. Therefore, in this study, we have tried to examine the effect of intangible investment on increasing the productivity of these industries. The results for industries with a four-digit ISIC code during the years 1996 to 2021 show that intangible investment not only positively affects the TFP of small and medium enterprises, but also that this effect is significantly larger than that for large enterprises. In general, intangible investment positively affects increasing TFP in all industries. Furthermore, the size of industries and companies has a decisive role on the degree of influence of intangible investment on TFP. Hence, for reaching the highest productivity, it is recommended to focus intangible investment on SMEs.

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