Impact of Import Tariff Reduction on Iranian Agricultural Macro Variables and Rural Welfare

Iran is required to reduce import tariffs to be accepted as a member of the World Trade Organization. Findings of the studies show that possible impacts of the import tariff reduction in agriculture sector is not necessarily in line with whole of economy, needing for examining individually. The objective of this study is to investigate the possible impacts of reduction in import tariff on agriculture macro variables and rural welfare. To get the objective a computable general equilibrium framework based on the Iranian social accounting matrix of 1999 was used. This framework contains both of agriculture and non agriculture sectors. The matrix was modified using import tariff data for 2009 and subsidies of 2008 as well as tariff equivalence of non tariff barriers. Then the matrix was used to analyze the import tariff impacts. Welfare impacts were examined in terms of Equivalent Variation (EV) for the income deciles. The findings of the study show that reduction in import tariff of agricultural sectors and agricultural dependent industries results in lower output and prices of agricultural products. Moreover, the results reveal that import tariff reduction in non agriculture sectors results in higher output and lower prices in agricultural sectors, however, the changes of the output exceeds the corresponding price changes. We also find that tariff reduction increases rural households' welfare, expecting more increase for the higher income deciles. Gradually reduction of tariffs and temporarily protecting plans are suggested as polices.

JEL Classification: Q17, F13, F14