A CGE Analysis of the Welfare Effects of Tariff Liberalization in Iran: the Hicksian Equivalent Variation (EV)

The promotion of human welfare is undoubtedly one of the greatest challenges of economic development. To this end, the last decade saw several developing countries embracing globalization and in particular, significantly lowering barriers to trade. This paper employs a computable general equilibrium (CGE) model to investigate the welfare impact of tariff liberalization. The Hicksian Equivalent Variation (EV) captures the welfare change. Needed data were obtained from the social accounting matrix of year 2001 in which parameters of model were calibrated accordingly. Three scenarios were examined: import tariff rate reduction on 1) agricultural sector, 2) non-agricultural sectors, and 3) all sectors. All scenarios result in overall economy-wide welfare with respect to the base. The EV increased by nearly 65, 3047, and 3112 billion rials in scenarios 1, 2 and 3 respectively with 100% reductions on import tariffs.