The Effect of Tariff Reduction in Agricultural Sector on Macroeconomic Variables: Using Global Trade Analysis Project (GTAP)

Introduction: Economic effects of membership in the WTO in recent years, has been one of the most important issues for Iranian economy. If Iran joins the WTO, in this process, tariff reduction in agricultural sector will be one of the policies which has to be employed. Therefore, investigating economic effects of tariff reduction or even its elimination in this sector will be necessary in running effective policies to minimize the probabilistic losses of accession. Tariffs on agricultural products in Iran are determined merely on the basis of annual country economy, and have no long term strategy. Government is just obliged to impose effective tariffs on agricultural products imports, in order to protect local productions. On the other hand, according to the census of population and housing, the share of agricultural sector in employment has reduced during the past decade. Moreover, Iran central bank information indicated the reduction in the share of agricultural sector in GDP for the past decade. Declining the share of agriculture in production and employment, considering the high number of university graduates in the field of agriculture along with rising unemployment rate of this group, motivated this study to investigate the effect of tariff reduction in this sector on macroeconomic variables. Materials and Methods: This study analyzed the welfare effects of import tariffs reduction in agricultural sector from Iran most important commercial partners and vice versa, using the Global Trade Analysis Project (GTAP), based on computable general equilibrium (CGE) model. Moreover, the effects of tariffs reduction, is investigated on output, price level and transfer of production factors between different economic sectors. In order to simulate the above model, we used GTAP version 8 which covers 57 commodities and 113 regions with economic information of these regions. This model uses Social Accounting Matrix of countries as data information. Our model includes 3 regions: Iran, ECO and CIS countries as commercial partners of Iran, and the rest of the world, 5 production factors: land, skilled labor, unskilled labor, capital, and natural resources, and finally, 3 production sectors: agriculture, industry, and services. Two scenarios are simulated in this study: first, 50 percent imports value tariff reduction, and zero import tax target rate on intermediate goods for agriculture production in Iran is been considering. For the second scenario, we set a zero tar