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An Empirical & Theoretical Study about the Effects of Tariff on Economic Growth

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  • Alireza Rahimi-Boroujerdi

    (Associate Professor of Economics, University of Tehran)

Abstract

One of the methods for studying the relation between economic growth and international trade is considering the effects of tariff on economic growth. The neo-classical economists believe that free trade not only has significant benefits for every country but for all in the world, therefore, they are seeking for laterally and multi-conceptual omission of trade restrictions and advise on the countries with taking into consideration of specialization to do their best in production and international division of labor with little interferences of government in international trade. In this paper and in order to show the effects of tariffs on economic growth, at first we maximize the household utility function in a neo-classical model. The period of our study is from 1961 up to 1998 lunar. The effects of tariff on economic growth have been considered in two different scenarios. In the first scenario, we assume that exogenous technological progress rate is equal to 2% and depreciation exchange rate is equal to 10%. In the second scenario, the exogenous technological progress rate is 2% and depreciation rate is 5%. The results of both confirm that any trade restrictions may result to a reduction in economic growth rate. In this manner, the effect of tariff rate on economic growth in post- revolution period in comparison with pre-revolution one has decreased due to the result of reduction in degree of openness and reduction of population growth rate. On the other hand, any lower depreciation rate may have a negative effect on economic growth

Suggested Citation

  • Alireza Rahimi-Boroujerdi, 2005. "An Empirical & Theoretical Study about the Effects of Tariff on Economic Growth," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 10(1), pages 105-133, spring.
    • Handle: RePEc:eut:journl:v:10:y:2005:i:1:p:105
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    References listed on IDEAS

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    1. Edwards, Sebastian, 1989. "Openness, outward orientation, trade liberalization, and economic performance in developing countries," Policy Research Working Paper Series 191, The World Bank.
    2. Harrison, Ann, 1996. "Openness and growth: A time-series, cross-country analysis for developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 419-447, March.
    3. J. de V. Graaff, 1949. "On Optimum Tariff Structures," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 17(1), pages 47-59.
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    Cited by:

    1. Dan He & Zhiqiong Zhang & Minglong Han & Yizhi Kang & Peng Gao, 2022. "Multi-dimensional boundary effects and regional economic integration: Evidence from the Yangtze River Economic Belt," International Regional Science Review, , vol. 45(4), pages 472-498, July.

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