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Publications & Research :: Policy Research Working Paper

Trade, Foreign Exchange, and Energy Policies in the Islamic Republic of Iran : Reform Agenda, Economic Implications, and Impact on the Poor

AGRICULTURAL COMMODITIES AGRICULTURE APPLIED TARIFF AVERAGE TARIFF BENCHMARK BENCHMARK EQUILIBRIUM CAPITAL INFLOWS CENTRAL BANK CONSTANT ELASTICITY OF TRANSFORMATION CONSTANT RETURNS TO SCALE CONSUMER INCOME CONSUMERS COST MINIMIZATION COUPONS CURRENT ACCOUNT CUSTOMS VALUATION DEBT DEMAND FOR GOODS DOMESTIC CONSUMPTION DOMESTIC MARKET DOMESTIC PRICE DOMESTIC PRICE OF IMPORTS DOMESTIC PRICES DOMESTIC PRODUCERS DOMESTIC PRODUCTION DOMESTIC PRODUCTS ECONOMIC IMPLICATIONS ECONOMICS ELASTICITIES ELASTICITY EQUILIBRIUM EQUIVALENT VARIATION EXCHANGE RATE EXCHANGE RATE REGIME EXPORT MARKETS EXPORT PRICES EXPORTERS EXPORTS FACTORS OF PRODUCTION FOREIGN EXCHANGE FOREIGN TRADE GDP GENERAL EQUILIBRIUM MODEL GOVERNMENT EXPENDITURES IMPACT OF TRADE IMPACT OF TRADE LIBERALIZATION IMPERFECT COMPETITION IMPORT DUTIES IMPORT DUTY IMPORT PROTECTION IMPORT TARIFF IMPORTS INCOME INTERMEDIATE GOODS INTERMEDIATE INPUTS INTERNATIONAL PRICES INTERNATIONAL STANDARDS MARGINAL COST MARGINAL COST PRICING MARKET MECHANISM MARKET PRICES MINES NATURAL RESOURCES OIL OIL SECTOR OPEC POLICY RESEARCH POLITICAL ECONOMY POVERTY LINE PRIMARY FACTORS PRIVATE CONSUMPTION PRIVATE GOODS PRIVATE SECTOR PRODUCERS QUANTITATIVE ESTIMATES QUOTA RENTS QUOTAS REAL EXCHANGE RATE REAL WAGE RENT SEEKING RENT SEEKING BEHAVIOR RESOURCE ALLOCATION RETURN ON CAPITAL TARIFF BARRIER TARIFF BARRIERS TARIFF DATA TARIFF EQUIVALENCE TARIFF EQUIVALENT TARIFF EQUIVALENTS TARIFF RATES TARIFF REDUCTION TARIFF REVENUE TARIFF REVENUES TERMS OF TRADE TERMS OF TRADE EFFECTS TRADE LIBERALIZATION TRADE LIBERALIZATION INCREASES TRADE POLICY TRADE REFORM TRADE TAXES UNIFORM TARIFFS UNSKILLED LABOR VALUATION VALUE ADDED VALUE OF EXPORTS VALUE OF IMPORTS WAGE RATE WAGES WELFARE GAINS WORLD MARKETS WORLD PRICES WORLD TRADE WORLD TRADE ORGANIZATION WTO ZERO PROFITS ZERO TARIFFS INTERNATIONAL TRADE FOREIGN EXCHANGE ENERGY POLICY REFORM POLICY ECONOMIC IMPLICATIONS COMMODITIES SUBSIDIES
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World Bank, Washington, DC
Middle East and North Africa | Iran, Islamic Republic of
2013-09-09T20:27:21Z | 2013-09-09T20:27:21Z | 2002-01

The Islamic Republic of Iran has committed itself to substantial trade and market reform in its Third Five-Year Development Plan. It started out with nontariff barriers on all products, a dual exchange rate regime with the market rate more than four times the official rate, and domestic energy subsidies equal to about 90 percent of the cost of energy products. Many of these policies were justified as helping the poor. To analyze the effect of the reforms, separately and together, the authors develop a multisector computable general equilibrium model with 10 rural and 10 urban households. They find that the combined reforms could generate welfare gains equal to about 50 percent of aggregate consumer income. These gains reflect the large initial distortions-for example, energy subsidies equal to about 18 percent of GDP, and retail energy prices equal to about 10 percent of world market prices. Separately, trade reform would lead to gains of about 5 percent of income, exchange rate reform to gains of 7 percent of income, and energy pricing reform to gains of 33 percent of income. The authors' results show that well-intentioned commodity subsidy policies for the poor can have perverse effects. Direct income payments to all households (not just the poor) would vastly increase the incomes of the poor compared with the status quo. Moreover, if the combined reforms were implemented, the poorest rural household would receive gains equal to about 290 percent of its income, and the poorest urban household gains equal to about 140 percent of its income.

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