Agricultural Land Productivity Improvement and Trade Liberalization in Iran: A CGE Analysis

Abstract

This paper examines the effects of agricultural land productivity improvement on the economy of Iran assuming that the domestic and international trade liberalizations will open up the opportunities to expand market access. A 25-sector computable general equilibrium model was developed to simulate the effects of this policy. The simulation results indicate that enhancing agricultural land productivity while implementing trade policy reform results in an expansion of agricultural sector which, in turn, leads to the expansion of food manufacturing and service sectors and mitigating the problem of unemployment. Furthermore, improving land productivity results in a decrease in the price of food products and an increase in real GDP. Consequently, food security enhances and Iranian welfare improves. As a result, this is an appropriate domestic policy for Iran. This policy results in an expansion of agricultural sector which in turn leads to expansion of food manufacturing and service sectors, mitigates the unemployment problem, improves the Iranian welfare as the real GDP increases, and improves the food security in Iran, as the price of food products decreases.