The Range of Import Pass-Through Tariffs to Agricultural Products Prices in Urban and Rural Areas of Iran

Due to dependence of households to agriculture in terms of income and consumption, study the effects of trade liberalization in this sector is necessary in developing countries. Trade liberalization policies have different results in various countries because of the factors that influence price transmission from world markets to domestic market. In other words, the extent of tariff pass-through is different in this country. Tariff pass-through determines how much tariff changes pass-through to domestic prices, therefore study the extent of tariff pass-through to prices is important. The aim of this study is determine the extent of tariff pass-through to agricultural products prices considering the heterogeneity in urban and rural area during 1384-93. For this purpose, major agricultural products in the household basket, aggregated in six groups and extent of tariff pass-through to prices of these groups, were estimated by making pseudo panel data and using Nikita (2004, 2009) tariff pass-through model. The reason to use pseudo panel data is that time series of household surveys data does not exist. Deaton (1985) states that it is possible to construct pseudo-panel data by using repeated of cross-sectional data (with individuals completely different from one to another) and obtain estimators similar to panel data. In this method, each cohort will be created using individuals who share some common characteristics. Then, observations are constructed from average of each cohort. Study the extent of tariff pass-through to agricultural prices is important because Iran has not experienced a broad liberalization and did not joined WTO; also for low income and developing countries such as Iran local markets may be exposed to high transfer costs and often poor integration into the international economy. So the regional aspects of tariff pass-through is important. The results of this study represents the ability or defect of regional markets in global prices pass-through to local prices and this will be a guidance for policymakers to reform the structure of local markets before joining WTO.
Tariff pass-through theory is based on exchange pass-through literature that examines the changes in price of imported goods due to changes in exchange rate. Tariff path-through model determines how much of observed changes in prices during the study can be directly attributed to tariff changes policy. To calculate the effect of tariff changes on prices we used Nikita (2004, 2009). He expresses that change in domestic prices of imported goods is determined by tariff change multiplied imported goods prices and adjusted by changes in exporter markup. Since the development of domestic markets is important, this model use trade costs to calculate the extent to which local markets are receptive to movements in border prices.
The results indicated an incomplete tariff pass-through for different groups of agricultural products. Tariff Change have different effects on prices of agricultural products in urban and rural areas. As in urban areas tariff pass- through to prices are in range of 0 and 17 percent and in rural areas are in range of 0 and 26 percent. This level of tariff pass-through is slightly smaller than what has been stated in the literature. For example Nikita (2009) has gained tariff pass-through to agricultural prices almost 33%. Cherkaoui et al (2011) has gained results about 13% and Marchand (2012) result show that tariff pass-through to agricultural prices are between 64 to 68 percent in urban areas and in range 33 to 49 percent in rural area. However, results of this study are not unexpected since the extend of tariff pass-through in developing countries such as Iran with limited infrastructure and incomplete markets, can be lower.
The main important result of this study is that any change in trade policy can not completely pass-through to consumers. Factors such as noncompetitive markets, defect in markets and infrastructures may keep households away from positive effects of tariff changes in urban and rural. Our results are also consistent with Marsh (18) that expresses since the self-consumption tariff path-through to prices is lower in rural areas, in some rural areas, producers and consumers may be completely separated from economy. Therefore, as can be seen in this study clearly price changes in border has not affected the local prices. It is necessary for policymakers to consider factors such as market prices transmission mechanism and infrastructure conditions in trade policies.