The Effects of Trade Liberalization on Income Inequality under Resistance Economy: A Computable General Equilibrium Approach (Case Study of Iran)

Abstract

The main purpose of this paper is to investigate the effect of trade liberalization on income inequality with consideration of socio-institutional factors emphasized by resistance economy policies in Iran. To meet this end, the Decaluwe et al. (2013) model has been adjusted and it is solved based on Social Accounting Matrix data of year 2011. The results show that in current institutional situation of Iran, the reduction of tariffs in the agriculture, horticulture, forestry and mining sectors can reduce inequality and tariff reduction in sectors of food industry, low technology industries, high technology industries, higher education, transportation and other services will increase inequality in urban and rural areas. By reducing tariff rates in mid-tech industries, inequality in urban and rural areas initially decreases and then increase. Reducing tariffs in oil and gas and healthcare sectors does not affect inequality in urban and rural areas. It is also shown that in the case of implementing resistance economy policies and improving institutional quality, tariff rate reduction in all sectors of production will reduce inequality. Reducing tariff rates in primary and secondary education sectors, housing and other sectors that de not have any link to outside world has no effect on inequality, both in the current institutional situation and in the case of institutional quality improvement as a result of implementing resistance economy policies. Therefore, it is suggested that attention be paid to improvement of institutional quality in the country, along with the implementation of resistance economy policies.

Keywords

• trade liberalization
• resistance economy
• computable general equilibrium model
• iran
• socio-institutional factors
• income inequality