Effects of R&D spending and Spill-Over on Agricultural TFP in Iran

Investing in research and development spending (R&D) affects total factor productivity (TFP).Recently new theories of economic growth have emphasized the relationship between R&D and TFPand also identified a number of channels through which a country’s R&D affects TFP of its tradepartner. This study seeks to estimate the effect of agricultural R&D and education spending and someother factors on agricultural TFP in Iran during 1971 to 2011. Agricultural TFP is calculated usingKendrick Index and the model is estimated by OLS method using E-Views 7.0.All explaining variables in the model (right-hand variables) effect on agricultural productivity indifferent lags positively with 5% confidence. The best lag length is opted using Akaike information,Schwarz and Hannan-Quinn criterion. The results show that 1 percent increase in R&D spending inagriculture, education expenditure in agriculture, government investing in agriculture and rainfall willpromote agriculture TFP 0.13 percent by 5 lags, 0.10 percent by 2 lags, 0.14 percent by 1 lag and 0.17percent at the same time respectively. R&D spending in other sectors (except agriculture) and importof capital inputs in agriculture are contained in the model as research spill-over. The elasticity of thesetwo factors is estimated 0.09 by 5 lags and 0.04 by 2 lags