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

Transcription

1 Technologcal Change and ts Relatonshp wth Total Factor Productvty n Iran's Petroleum Refneres Nader Dasht a*, Mahd Rostam b, Reza Rashd c a Assstant Professor,Energy Economcs and Management Department,Petroleum Faculty of Tehran, Petroleum Unversty of Technology, Iran, Emal: dashtn@put.ac.r b Assstant Professor,Energy Economcs and Management Department,Petroleum Faculty of Tehran, Petroleum Unversty of Technology, Iran, Emal: mrostam@put.ac.r c MA Student n Ol & Gas Economcs, Petroleum Faculty of Tehran, Petroleum Unversty of Technology, Iran, Emal:rezarashdgerm1990@gmal.com A R T I C L E I N F O Keywords: Productvty Technologcal change Translog cost functon, Petroleum refneres Receved: 04.Apr.017 Receved n revsed: 13.Aug.017 Accepted: 19.Aug.017 A B S T R A C T Nowadays, usng approprate technologes n order to ncrease productvty of producton factors can be resulted n optmal factors employment and producton enhancement n factores. Technologcal change s consdered as one of the man sources of productvty growth. The purpose of ths paper s to analyze the varous aspects of technologcal change and ther relatonshp wth total factor productvty n Iran s petroleum refneres. In order to acheve ths goal, we used the econometrc method to estmate the cost functon. Ths method seems useful to estmate the structure of factors demand, consderng changes n factors prces and technology status. We estmated a translog cost functon as well as equatons system of cost share, usng Seemngly Unrelated Regressons (SUR) approach from 198 to 01. The results show that the average rate of technologcal change was 0.48 percent over the study perod. It means that over tme, the cost growth rate of producton unts was decreased manly due to technologcal change. Furthermore, the results ndcate that technologcal change was based towards the use of more labor and materal, whle t saved more captal and energy. Also, based on the estmaton results, we decomposed total factor productvty growth rate nto the contrbutons of technologcal change and economes of scale. Decomposton results show that the share of technologcal change n the productvty growth s greater than that of scale economes. 1. Introducton Petroleum Refneres are consdered as one of the most mportant parts of the ol ndustry value chan. Ths sector operates as an mportant tool for lnkng between the upstream producton and consumer market. Iran s a maor producer of ol, but the country s relatvely weak on petroleum refnng capacty. Although the number of ol refneres was ncreased but for many reasons ncludng low technology, resources were not been used effcently and as a result many potental capactes of the refneres have not been utlzed. Bg pcture revew on the volume of producton and number of ol refneres n Iran shows that the problem s not the fewer number of the refneres, but the problems are low factor productvty, old producton methods, napproprate applcatons of modern technology, management weakness, etc. Thus t seems necessary to conduct researches on technologcal change analyss n order to enhance productvty n ol refneres and consequently optmze utlzaton of resources. Several studes on dfferent sectons of economy revealed that the effect of technologcal change to mprove productvty are sgnfcant. After Second World War, the * Correspondng Author

2 Volume 1, Issue 1 November 017 studes on techncal change were expanded n economcs. Some of the wellknown studes are Solow (1957, 196), Salter (1960), Intrlgator (1965), McCarthy (1965), Drandaks and Phelps (1966) Jorgenson (1966), Nordhaus (1969), Atknson and Stgltz (1969), Dewert (1971), Bnswanger (1974), Stevenson (1980), Romer (1990), Kant and Nautyal (1997), Peretto (1999), Rasmussen (000), Napasntuwong and Emerson (00,003), Datta and Chrstoffersen (004), Grebel (009), Krysak (011), Mattala (013), Hart (013), Roshef (013), Schafer (014), and Chen and Wemy (015) among others. Tendency toward such researches have two man reasons: Frstly, supply ncrease of ndustral products versus ther demand caused decreasng trend n ther prces and consequently n ndustral secton s revenue. Ths attracted many economsts to dscover the reasons of the growth, and they found that one of the man reasons for such growth s techncal change. Secondly, there was a shortage of ndustral materals n developng countres. Therefore, accordng to the aforesad studes, techncal change was consdered as a maor reason of productvty growth (Hayam and Godo, 005). Technologcal change n petroleum refneres s also one of the man elements of productvty growth. Thus, t s necessary to enhance our understandngs on the technology of petroleum refneres, bas and rate of growth n order to modfy and mprove the ndustry condton. Consderng above, the man purpose of ths study s to analyze dfferent aspects of technologcal change n Iran s petroleum refneres durng the s Methodology In producton process lterature, producton technology s defned as the relaton between nputs and output, whch can be llustrated by producton functon (Chambers, 1988). The producton structure and technologcal change can be surveyed by producton functon or dual cost functon. Drect estmaton of producton functon wll be approprate f amount of output s determned endogenously, whle for exogenous amount of output cost functon s preferred (Kant and Nautyal, 1997). For ths study we chose translog functonal form as the most approprate functonal form among all functonal forms, because t s wdely used n smlar researches and also s flexble enough. Furthermore, t has several theoretcal and statstcal characterstcs advantages such as the flexblty of avodng prespecfcaton of any partcular relatonshps, and the mposton of mnmum restrctons on the parameters. Moreover, factor demand functons can be derved from Shepherd s lemma (Bhattacharyya, 011). General form of cost functon consderng tme trend (T) varable s as follow (Rasmussen, 000): C = f (Pl, Pk, Pe, Pm, Q, T) In whch Pl, Pk, Pe and Pm are prces of labor, captal, energy and materal respectvely. Q s value of product and C s cost. So, translog cost functon s wrtten as follow: LnC v b b q t 1 a LnP aq lnq 1 LnQln P b ln P T b ln qt q lnq b T b T Q T, k, l, e, m t b LnP LnP Factor cost shares can be obtaned by partal dervaton of translog functon wth respect to th nput prce, thus: ln C C P xp S ln P P C C S a b ln P b q ln Q b T t In whch, C P X, S s cost share of th nput and X refers to amount of factor. In order to ensure that the underlyng cost functon s wellbehaved, the cost functon must be homogeneous of degree one n nput prces, gven output. Then, lner homogenety n factor prces and symmetry mposes the followng restrctons: a 1 b 0 1 tt (1) () (3) (4) bq 0 b b Rate of technologcal change can be obtaned by dervaton of cost functon wth respect to tme (Datta and Chrstoffersen, 004 and Kant and Nautyal, 1997): lnc C bt bttt T b lnp b lnq t qt It shows that technologcal change can be dvded nto three elements: 1 pure techncal change (bt+btt T) nonneutral techncal change ( bt lnp ) 3 scaleaugmentng techncal change (bqt lnq) The frst element pure techncal change has no relaton (5) (6) 3

3 wth nputs, amount of output and factor prces. It s a fxed part of functon and ts change causes cost functon movng towards up or down. If t s negatve, cost functon goes down and t ndcates postve technologcal change. Interacton of factors over tme s n second element. In other words, t shows the effects of technologcal change on factors durng the tme. It shows any substtuton or savng factors. Changng ths element results slope changng of cost curve. Thrd element s the effect of technologcal change on the capacty of nsttute. Clearly scaleaugmentng technologcal change causes Economes of scale, due to ncreasng n producton. It also decreases cost and leads to cost functon shft.in cost functon, return to scale (scale elastcty) s determned as follow: 1 lnc E ln ln ln aq bq Q b q P bqtt Q Return to scale refers to changes n output subsequent to a proportonal change n all nputs (where all nputs ncrease by a constant factor). If output ncreases by that same proportonal change then there are constant returns to scale (CRS). If output ncreases by less than that proportonal change, there are decreasng returns to scale (DRS). If output ncreases by more than that proporton, there are ncreasng returns to scale (IRS). Stevenson (1980) beleves that technologcal change may have bas to factor and scale characterstcs of producton. In case of techncal progress, factor bas s as follow: I b S T If I b <0, technologcal change results to use nput more. If I b <0, technologcal change saves nput. If I b =0 then t has no effect on usng nput. Scale bas s calculated by dervaton of the phrase n bracket: ln C S SE ln P ln Q ln Q If SE>0, ncreasng of producton scale, leads to use nput more. If SE<0, t leads to use nput less. If SE=0 t has no effect on usng nput. Cost functon system can be estmated f data and nformaton s avalable. Although parameters of basc cost functon are beng estmated by Ordnary Least Squares (OLS) method, but t does not nclude cost share equatons. A sutable method to estmate such systems s Seemngly Unrelated Regresson (SUR). Snce value shares sum to usng, 1 (7) (8) (9) the sum of the dsturbances across any three equatons s zero at all observatons (Baltag, 005). Hence, to avod sngularty of the covarance matrx any one of the four share equatons can be dropped,.e., three can be estmated and the forth s automatcally determned (Kant and Nautyal, 1997). We drop energy share equaton. Eventually, accordng to the methodology, technologcal change s beng analyzed. 3. Technologcal change and total factor productvty There are dfferent ways to calculate the total factor productvty. In ths research ths crteron calculated through econometrc method and estmaton of parameters. In ths way, by estmatng cost elastcty of the relevant producton and replacng t n the followng formula, total factor productvty growth can be estmated (Baltag and Grffn, 1988): TFP T ( 1 ) CQ Q (10) In ths regard, T ndcates the technologcal change,s CQ elastcty of the cost related to product, Q s the per cent of producton growth. 4. Sources of Data and Structure of Varables The data were collected from varous edtons of the Iranan reports on ndustral enterprses and dfferent volume of the Wholesale Prce Index n Iran. We have adopted 004 as base to convertng nomnal data to real data. Output s the value of aggregate output produced durng the. Ths mples that no change n the stock of output has taken place. The captal expendture s computed as the user cost of captal multpled by the captal stock. In order to calculate the user cost of captal, we used Puk=(r+P) P, where r s the long run nterest rate, P s the deprecated rate of captal assumed to be 5.5 % by and P s the nvestment deflator. Total cost s the sum of the cost of labor, captal, materal and energy. For labor nput, the number of persons employed and the wage calculated for emoluments per person employed have been used for model estmaton. The prce of labor s obtaned as the rato of total compensaton to labor dvded by the number of workers. Fuel cost s the cost of all types of fuel used for producton. We add fuel cost to electrcty cost to obtan energy cost. The prce of fuel s obtaned by takng a weghted average of all types of fuel prces. The prce of energy s obtaned by takng a weghted average of 4

4 Volume 1, Issue 1 November 017 fuel and electrcty prce. The cost share of labor, captal, materal and energy are obtaned by dvdng the correspondng cost by the total cost. 5. Test of Statonarty To use tme seres data n estmaton of model, we need to examne the seres for statonarty. If a tme seres s statonary, ts mean, varance, and autocovarance (at varous lags) reman the same no matter at what pont we measure them; that s, they are tme nvarant. If seres are nonstatonary, F and t statstcs are not vald and estmated model s not relable (Guarat, 004). A commonly used test that s vald n large samples s the Augmented Dckey Fuller test. Results of the Augmented DckeyFuller (ADF) test showed that all varables have unt root and after frst dfference ADF statstcs were greater than Macknnon Crtcal Values and thus we can reect the null hypothess of a unt root at all common sgnfcance levels whch means they become statonary (Table 1). Also the test shows statonarty of resduals (table ). Thus, spurous regresson s reected and Table 1: Results of Augmented DckeyFuller Unt Root Test on Varables Varable* D(LC) D(LPL) D(LPK) D(LPE) D(KPM) D(SL) D(SK) D(SE) D(SM) D(LQ) ADF statstcs Macknnon Crtcal Values 10% * Ln of varables n equatons no. 1 & 3 5% % Table : Results of Augmented DckeyFuller Unt Root Test on Resduals Varable* RESID 1 RESID RESID 3 RESID 4 ADF statstcs Macknnon Crtcal Values 10% % % the results of estmaton are relable. 6. Emprcal Results 6.1 Parameter estmates of the translog cost functon The parameter estmates of the translog cost functon along wth the assocated cost share equatons are presented n Table 3. Many sgnfcant varables and hgh value of R are sgns of good estmaton. Durbn Watson (D.W) statstc shows that there s no autocorrelaton n the estmated model. 6. Rate of Technologcal Change The study of technologcal change over the study s clarfed that by the passage of tme, technologcal progress n petrochemcal ndustry decreased the rate of cost change. Accordng to the equaton 6, rate of technologcal change snce 198 to 01 was It means that average rate of decrease n cost of producton was 0.48 % each. As Table 4 portrays, although ths rate changes over tme, but negatve sgn means decreasng n cost rate durng the tme. Thus, our estmatons confrm that technologcal progress decreased rate of cost change of the petroleum refneres. Table 3: Results of Parameters Estmates Parameter v al ae am ak aq bll bkk bee bmm blk ble blm Coeffcent t Statstc Parameter bkm bem blq bkq beq bmq bq bt btt blt bkt bet bmt bqt Coeffcent t Statstc Statstcs of Cost Equaton R =0.99 R =0.94 D.W=.17 Statstcs of Equaton of Labor share R =0.68 R =0.60 D.W=1.8 Statstcs of Equaton of energy share R =0.78 R =0.73 D.W=1.86 Statstcs of Equaton of materal share R =0.75 R =0.69 D.W=1.91 5

5 6.3 Return to Scale Return to scale ndcates that t was ncreased durng the study s wth the average of 1.6 (Table 5). Thus, capacty expanson of producton unts leads to Economes of scale. 6.4 Factor and Scale Bas The results of factor and scale bas (equatons 8 & 9) are presented n Table 6. Postve sgns of bas of labor and materal factors show that labor and materal use was ncreased durng the study tme. It means that f the prces of other factors reman constant, the cost shares of labor and materal wll ncrease durng the tme. On the other hand, negatve sgn of bas of energy, ndcates that usng modern technologes causes less use of energy n producton unts. Fnally, negatve sgn of captal shows that usng advanced machneres leads to captal savng. Accordng to scale bas fgures, ncrease n producton scale wll lead labor and materal to be used ncreasngly. It means that expanson n sze of producton unts ncreases tendency to use more labor and materal. Meanwhle, captal and energy factors were used decreasngly. 6.5 Total factor productvty growth and technologcal change Table 4: Rete of Technologcal Change Rate of technologcal change(percent) Average of perod = 0.48 Rate of technologcal change(percent) Gven that technologcal change s one of the man sources of change of total factor productvty n manufacturng plants, therefore, mprovement of technologcal change can contrbute to the growth of total factor productvty. Accordngly, by estmatng the cost functon parameters and usng equaton (10), the growth of total factor productvty was measured and dvded nto technologcal change and economes of scale. The results are shown n Table 7. Through econometrc approach, we also found that the annual average of total factor productvty was 0.59 percent over the study perod. In general, ths growth orgnated from two factors, the changes n technology and producton unt sze (producton scale). In addton to the mentoned factors, there were some other factors whch affected productvty of ths sector lke dversfy ol and gas producton and safety systems of producton, transportaton and consumpton. There are other factors that had a negatve mpact on the effcency of the petroleum refneres such as as agng refneres, deprecaton facltes and the absence n the global market. However, productvty growth n ths sector was postve durng the study perod. As Table 6 shows, mproved total factor productvty was sgnfcantly affected by changes n technology. Due to the negatve rate of technology change, t s characterzed that the use of approprate technology over tme causes de Table 5: Return to Scale Return to Scale Average of the perod = 1.67 Return to Scale

6 Volume 1, Issue 1 November 017 Table 6: Factor and Scale Bas Input Labor Captal Energy Materal Factor Bas Scale Bas clne n the rate of change n the cost of producton. Thus, the unt producton s achevable by lower expendng. On the other sde, the ncreasng sze of the producton unt may lead to mproved total factor productvty. Therefore, the result of mprovement n technology and producton scale s observed through growth of total factor productvty n petroleum refneres ndustry. 7. Conclusons Estmaton of translog cost functon and cost share equatons by SUR method n Iran s petroleum refneres seems approprate because many of coeffcents are sgnfcant and R s relatvely hgh. The sgn of the rate of technologcal change show that over tme, rate of change n the cost of producton unts was decreased. Accordng to the results of our estmatons, we realzed that usng new and advanced technology led to better cost change durng the study perod. Thus, t s expected to have more economc producton n petroleum refneres through rght technologes. Moreover, our analyses, scale elastcty statstc ndcates ncreasng return to scale n Iran s petroleum refneres.e. producton ncreases were more than the proportonal change n all nputs, whch n turn decreased per unt cost. And as a result Economes of scale was appeared n producton process. Over the study perod, the results of our model on factor and scale bases n petroleum refneres also revealed that the factor bas and scale bas of labor and materal were postve whle we observed hgh cost shares of these nputs out of total cost of nputs n producton unts. Consequently, we recommend that managers should be encouraged to enhance the productvty of the mentoned nputs n order to decrease producton cost. Moreover, ths type of technologcal change dmnshes dependence on captal and energy and related costs. Fnally, based on the estmaton results of the above mentoned models, we decomposed total factor productvty growth rate nto the contrbutons of technologcal change Table 7: Total Factor Productvty Growth and Technologcal Change Average Growth of total factor productvty Technologcal change Economes of scale

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