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Paper Information

Journal:   JOURNAL OF ECONOMIC STUDIES AND POLICIES (ECONOMIC POLICIES (NAMEH-YE MOFID))   SUMMER 2012 , Volume 8 (18) , Number 1 (90); Page(s) 111 To 136.
 
Paper: 

AN INVESTIGATION ON ALLOCATIVE EFFICIENCY OF TARGETING SUBSIDIES IN IRANIAN MANUFACTURING SECTOR: CASE STUDY OF PRICE DISTORTIONS IN INPUT MARKETS

 
 
Author(s):  KESHAVARZ HADDAD GHOLAMREZA, FIROOZAN TOHEED, SADEGHI HOSSEIN
 
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Abstract: 

In Iran’s economy, a high volume of energy subsidies along with the other price distortions has caused inefficiencies in the resource allocation, through distortions in the relative prices of inputs and commodities. This study aims at the examination and estimation of cost burdens incurred which stems from the allocative inefficiency of price distortion in energy carriers pricing in Iran’s industry sector. We estimated allocative inefficiency using a shadow cost function model based on a system of nonlinear equations which includes a price distortion equation. The cost model is estimated by the econometric method of Iterated Seemingly Unrelated Regression Equations (ISURE) and ‍Cross Section data-set of Iran’s industries. Our results show that, at the whole industry level, the costs of allocative inefficiency caused by all inputs’ price distortions are amounted to 45% of production costs of the firms in the industry sector. The extents of allocative inefficiency which are caused solely by distortions in the energy prices are equal to 34% of the production costs. Nonetheless, energy share of production costs increases to 10% from 5.7% actual level considering substitutionary and complementary relations among inputs after removal of the whole price distortion of energy input.

 
Keyword(s): INPUT PRICE, ENERGY SUBSIDIES, ALLOCATIVE INEFFICIENCY, SHADOW COST FUNCTION, MANUFACTURING SECTOR, ISUR
 
References: 
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