Nonlinear Impact of Education on Total Factor Productivity in Iran

Abstract

The study of the effect of education on total factor productivity is one of the important topics in the macroeconomic literature and educational policy. However, identifying the threshold of the effect of education on total factor productivity is of more interest to policymakers. The present study investigates the nonlinear relationship between education and total factor productivity for the period 1365-1397 SH (1986-2018). Average years of study have been used as an indicator of education and the Gentle Transfer Regression (STR) model has been applied to estimate the threshold. The results confirm the nonlinear effect of education levels on total factor productivity and show that the quantity of education index in a two-regime structure with a threshold of 81.86 (equivalent to the average years of study 7.82 years) has a significant effect on total factor productivity. Given that the Iranian economy has exceeded the threshold since 1390 SH (2011), increasing the quantity of education will have a negative impact on productivity. Therefore, reviewing the quantitative development of education and giving priority to improving the quality of education has more priority than in past.

Keywords

• human capital
• education
• total factor productivity
• smooth transition regression