Trend of Technological Change in Iran's Petrochemical Industry

Transcription

1 Trend of Technologcal Change n Iran's Petrochemcal Industry Nader Dasht & Hamdreza Kordloue Faculty of Accountng and Management, Islamc Azad Unversty, Eslamshahr branch, Iran Correspondence: Hamdreza Kordloue, Apt., No., Kakoot alley, After Motahar uncton, Sharat st., , Tehran, Iran. Tel: E-mal: hamdreza.kordloue@gmal.com Receved: March 7, 0 Accepted: May, 0 Publshed: July, 0 do:0.5539/ef.v4n7p50 URL: Abstract Nowadays, usng approprate technologes n order to make producton economc and ncrease productvty of producng factors can be resulted optmzed factors employng and also producton enhancement n factores. Technologcal change s consdered as one of the man factors of productvty growth. In ths paper we have studed on the trend and bas of technologcal change n Iran s petrochemcal ndustry by econometrc approach from 979 to 008. We estmated a translog cost functon n addton to equatons system of cost share, usng Seemngly Unrelated Regressons (SUR) approach. The results show that the rate of technologcal change has been percent durng the studed years. It means that there s a decrease n rate of cost of productve unts durng that perod. Furthermore, the results ndcate that technologcal change has been based towards the use of more labor and materal, whle captal and energy have been saved. Keywords: productvty, technologcal change, Translog functon, petrochemcal ndustry, Iran. Introducaton The frst petrochemcal factory n Iran was establshed n 964 and t was a fertlzer factory n Marvdasht regon. In the followng years, wth the nstallaton of other factores and the applcaton of dfferent technology ndces, petrochemcal ndustry developed, n away that, ths ndustry has reached to. percent of Iran s Gross Domestc Product (GDP). Although number of petrochemcal factory has ncreased but for many reasons, resources were not been used effcently and as a result many potental capactes has been unutlzed. A study on volume of producton and number of factores n Iran s petrochemcal ndustry shows that the problem s not the number of factores, but the problems are low factor productvty, old producton methods, usng modern technology ncorrectly, management weakness, lack of cognton of effectve elements on producton and ther comparatve mportance, etc. Thus t s nevtable to have researches on technologcal change analyss and to enhance productvty n petrochemcal ndustry to optmze usage of resources. The studes on dfferent sectons of economy posed that the role of technologcal change to mprove productvty has been sgnfcant. After Second World War, the studes on techncal change have expanded n economcs. Some of the famous studes are mentoned as Solow (957, 96), Intrlgator (965), McCarthy (965), Jorgenson (966), Dewert (97), Bnswanger (974), Stevenson (980), Romer (990), Kant and Nautyal (997), Rasmussen (000), Napasntuwong and Emerson (00,003), Datta and Chrstoffersen (004), Hyunbae and Nadr (008), etc. Tendency to such researches have two manreasons: Frstly, supply ncreasng n ndustral products n comparson to ther demand caused decreasng n prces and also n ndustral secton s revenue. It also caused troubles n ths secton. Ths attracted economsts to dscover the reasons of the growth, whle one of the man reasons or the most mportant one was techncal change. Secondly, there was a shortage of ndustral materals n developng countres. Therefore, accordng to the aforesad reasons, techncal change was consdered as a maor reason of productvty growth (Hayam and Godo, 005). Technologcal change n petrochemcal ndustry s also one of the man elements of productvty growth. In ths respect, t s necessary to recognze the technology of petrochemcal ndustry, bas and rate of growth to modfy and renforcement of mentoned ndustry condton. So, the goal of ths study s analyss of dfferent aspects of technologcal change n Iran s petrochemcal ndustry durng the years Method. Methodology In producton process, producton technology s the relaton between nputs and output, whch can be llustrated by producton functon (Chambers, 988). The producton structure and technologcal change can be surveyed by producton functon or dual cost functon; t s n any ndustry such as petrochemcal ndustry. Drect estmaton of 50 ISSN 96-97X E-ISSN

2 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, 997). In order to choose the most proper functonal form among all functonal forms, translog functonal form has been chosen. Because t s wdely used n smlar researches and also s flexble enough. Furthermore, t has some specal theoretcal and statstcal characterstcs lke dervaton of factor demand functons easly. General form of cost functon regardng tme trend (T) varable s as follow (Rasmussen, 000): C = f(p l, P k, P e, P m, Q, T) () In whch P l, P k, P e and P m 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 a LnP a LnQln P b ln Q ln P T b ln Q qt q q ln Q b T b T 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.so: tt () ln C ln P C P P C x P C S (3) S a b ln P b lnqb T (4) 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 well-behaved, 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: b 0 a b 0 q b b (5) Rate of technologcal change can be obtaned by dervaton of cost functon wth respect to tme (Datta and Chrstoffersen, 004 and Kant and Nautyal, 997): lnc C bt bt tt b tlnp bqtlnq (6) T It shows that technologcal change can be dvded n three elements: - pure techncal change (b t +b tt T) - non-neutral techncal change ( bt lnp ) 3- scale-augmentng techncal change (b qt lnq) The frst element pure techncal change- has no relaton 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 durng 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 capacty of nsttute. Clearly scale-augmentng technologcal change causes Economes of scale, because of 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: q t Publshed by Canadan Center of Scence and Educaton 5

3 lnc E lnq aq bqlnq bq lnp bqtt Returns 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 (980) beleves that technologcal change may have bas to factor and scale characterstcs of producton. In case of techncal progress, factor bas s as follow: S Ib T (8) 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: lnc S SE (9) ln P lnq lnq 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. Anyhow, 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 s not ncluded cost share equatons. A sutable method to estmate such systems s Seemngly Unrelated Regresson (SUR). Snce value shares sum to usng, 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, 997). We drop energy share equaton. Eventually, accordng to the methodology, technologcal change s beng analyzed.. Sources of Data and Structure of Varables The data were collected from varous edtons of the Iranan reports on ndustral workshops and dfferent volume of the Wholesale Prce Index n Iran. We have adopted 997 as base year to convertng nomnal data to real data. Output s the value of aggregate output produced durng the year. 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 year 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 fuel and electrcty prce. The cost share of labor, captal, materal and energy are obtaned by dvdng the correspondng cost by the total cost..3 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). Results of the Augmented Dckey-Fuller (ADF) test shows that all varables have unt root and after frst dfference, they become statonary (table ). Also the test shows statonarty of resduals. Thus, spurous regresson s reected and the results of estmaton are relable (table ). (7) 5 ISSN 96-97X E-ISSN

4 Table. Results of Augmented Dckey-Fuller Unt Root Test on Varables Varable* D(LC) D(LPL) D(LPK) D(LPE) D(LPM) D(SL) D(SK) D(SE) D(SM) D(LQ) * Ln of varables n equatons no. & 3 ADF Statstc Macknnon crtcal values 0% 5% % Table. Results of Augmented Dckey-Fuller Unt Root Test on Resduals Varable RESID 0 RESID 0 RESID 03 RESID 04 ADF Statstc Macknnon crtcal values 0% 5% % Results 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 estmated model. Table 3. Results of Parameter Estmates Parameter Coeffcent t-statstc Parameter Coeffcent V blm al bke ak bkm ae /843 bem am btt aq blt bt bkt bq bet bll bmt 0.00 bkk bqt bee blq bmm bkq blk beq -0.4 ble bmq = 0.96 D.W =R 0.99 =R t-statstc Publshed by Canadan Center of Scence and Educaton 53

5 3. Rate of Technologcal Change The study of technologcal change durng the studed years clarfy that by the passage of tme and technology progress n petrochemcal ndustry make decreasng n rate of cost change. Accordng to equaton 6, rate of technologcal change snce 979 to 008 s It means that rate of decreasng n cost of producton has been % n average each year. Though, rates of years are dfferent n table 4, but negatve sgn means decreasng n cost rate durng the tme. So, calculatons confrm that technology progress has decreased rate of cost change of petrochemcal factores. Table 4. Rate of Technologcal Change Year Rate of Technologcal Change (percent) Average of perod= % Year Rate of Technologcal Change (percent) Return to Scale Study of return to scale ndcates that t has been ncreasngly durng the studed years n average t s.6. Thus, capacty ncreasng of productve unts leads to Economes of scale. Table 5. Return to Scale 3.3 Factor and Scale Bas Year Return to Scale Average of perod=.67 Year Return to Scale 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 usng has ncreased durng the studed tme. It means that f the prces of other factors are constant, the cost shares of labor and materal ncreases durng the tme. On the other hand, 54 ISSN 96-97X E-ISSN

6 negatve sgn of bas of energy, ndcates that usng modern technologes causes less usng of energy n productve unts. Also, 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 productve unts causes tendency to use more labor and materal. Meanwhle, captal and energy factors have been used decreasngly. Table 6. Factor and Scale Bas Input Labor Captal Energy Materal Factor Bas Scale Bas Dscusson Estmaton of cost functon and cost share equatons by SUR method, show that the aforementoned functon explans the status of petrochemcal factores accurately; because many of coeffcents are sgnfcant and R s hgh. The sgn belongs to rate of technologcal change shows that durng tme, rate of cost n productve unts has decreased. Therefore we see that usng new and advanced technology cause better cost change durng the studed tme. So, t s expected to have more economc producton process n petrochemcal ndustry by usng of ths knd of technologes. Accordng to the results, scale elastcty statstc ndcates ncreasng return to scale n Iran s petrochemcal ndustry. In ths respect, petrochemcal producton ncreases more than the proportonal change n all nputs. Then, per unt cost wll be decreased and as a result Economes of scale s appeared n petrochemcal producton process. So, t s recommended to use the ways to ncrease the capacty of productve unts In perod of study, result assessment of factor and scale bas n petrochemcal ndustry show adopton of research fndngs. Consderng postve factor bas and also scale bas of labor and materal, and on the other hand, hgh cost shares of these nputs out of total cost of nputs n productve unts, managers ought to be encouraged to ncrease productvty of the mentoned nputs to decrease producton cost. Moreover ths knd of technologcal change dmnshes dependence on captal and energy and related costs. References Baltag, B. H., & Rch, D. P. (005). Sklled-based Techncal Change on US manufacturng: a general ndex approach. Journal of Econometrcs, 6, Bnswanger, H. P. (974). A Mcroeconomc Approach to Induced Innovaton. Economc Journal, 84, Chambers, R. G. (988). Appled Producton Analyss: A Dual Approach. Cambrdge Unversty Press. Datta, A., & Chrstoffersen, S. (004). Producton Costs, Scale Economes and Techncal Change n U.S. Textle and Apparel Industres. School of Busness Admnstraton,Phladelpha unversty. Dewert, W. E. (97). An Applcaton of the Shephard Dualty Theorem: A Generalzed Leontef Producton Functon. The Journal of Poltcal Economy, 79(3), Guarat, N. (004). Basc Econometrcs (4th ed.). McGraw-Hll. Hayam, Y., & Godo, Y. (005). Development Economcs. Oxford Unversty Press. Hyunbae, C., & Ishaq Nadr, M. (008). Decomposng Productvty Growth n the U.S. Computer Industry. The Revew of Economcs and Statstcs, 90, Intrlgator, M. D. (965). Emboded Techncal Change and Productvty n the Unted States, Revew of Economcs and Statstcs, 47, Iranan statstcal center. Iranan report on ndustral workshops, varous ssues. Jorgenson, D. W. (966). The Embodment Hypothess. Journal of Poltcal Economy, 74, Publshed by Canadan Center of Scence and Educaton 55

7 Kant, S., & Nautyal, J. C. (997). Producton Structure, Factor Substtuton, Techncal Change, and Total Factor Productvty. Canadan Journal of Forest Research, 7, McCarthy, M. D. (965). Emboded and Dsemboded Techncal Progress n the Constant Elastcty of Substtuton Producton Functon. Revew of Economcs and Statstcs, 47, Napasntuwong, O., & Emerson, R. D. (00). Induced Innovatons and Foregn Workers n U.S. Agrculture. Selected paper prepared for presentaton of the Amercan Agrcultural Economcs Assocaton Annual Meetng, Calfona. Napasntuwong, O., & Emerson, R. D. (003). Farm Mechanzaton and the Farm Labor Market: A Socoeconomc Model of Induced Innovaton. Selected paper prepared for presentaton of the Southern Agrcultural Economcs Assocaton Annual Meetng. Moble, A Labama. Rasmussen, S. (000). Technologcal Change and Economes of Scale n Dansh Agrculture. The Royal Eternary and Agrcultural Unversty KVL, Copenhagen. Romer, P. M. (990). Endogenous Technologcal change. Journal of Poltocal Economy, 98, Solow, R. M. (957). Techncal Change and the Aggregate Producton Functon. Revew of Economcs and Statstcs, 39, R. M. (96). Techncal Progress, Captal Formaton, and Economc Growth. Amercan Economc Revew, 5, 76-86, Stevenson, R. (980). Measurng Technologcal Bas. Amercan Economc Revew, 70, ISSN 96-97X E-ISSN