Author
Faculty member of the Faculty of Economics, Allameh Tabatabai University
Abstract
The Present research is an attempt to investigate the effects of Iran's trade strategy on the Performance of the country's manufacturing sector during 1979-1998.
I have formulated three working hypotheses as follows: (i) Import substitution strategy depending on petroleum export promotion, being inherently vulnerable, leads to foreign exchange constraintsin the long run. (ii) In Iran, industrial protectionism and extensive state intervention in the goods, capital, and foreign exchange markets over the past two decades have led to static inefficiency in the resource allocation of the economy in the sense that the benefits and costs of economic enterprises have deviated from the social benefits and costs. And (iii) the long-term pursuance of import substitution strategy braced with a persistent policy of non-selective, unconditional protection without any targeted time limit, have produced considerable damaging effects on the dynamism of the long run industrial growth.
Concerning a financial incentive system, the present research has revealed certain significant points as follows: (a) the pattern of protection can be characterized as disorganized, ambiguous and arbitrary. To substantiate the point, calculations have been made to identity the nominal and the effective rates of protection (ERP) for four major branches of industry. Using the conclusion, it is inferred that, concerning the operational extension of protection, differentiation has not been made between old manufacturing branches and modern industries. (b) Not only is the pattern of protection arbitrary, but the objectives of protection are not tailored with any targeted time-span.
Industrial performance has not been evaluated in relation to export promotion, production quality improvement, or cost reduction of output per unit. In spite of the already tried and failed experiences from the previous rigime showing industrial development strategy relying on single foreign exchange earnings of petroleum is vulnerable, the revolutionary government, for reasons of ideolgical considerations and without any economic evaluation of domestic and international circumstances enthusiastically patronised the policy of self-sufficiency and self-reliance.The policy which has been advocated for a long time, has failed realize the sweeping implications of globalisation in the world economy and the domestic economy's urgent need for non-oil export promotion.
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