A differential structural equation system including latent variables was applied for analyzing the sources of technical change in the agricultural sector of Iran, 1971-2005. The findings indicated that international knowledge spillover, human capital, and internal research and development expenditures have a significant role in technical progress in the agricultural sector of Iran. The findings showed that international knowledge spillover has been a more effective factor on the technical progress related to internal R&D. The technical progress was found out to be Hicks-neutral.technical change, latent variable, Iranian agriculture,