Effects of the Increase in the Global Price of Agricultural Products on Iran's Economy Using the GTAP Model

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Effects of the Increase in the Global Price of Agricultural Products on Iran's Economy Using the GTAP Model

Journal Title: Journal of Agricultural Economics & Development - Year 2024, Vol 38, Issue 1

Abstract

IntroductionFood security is one of the most important issues in the world. The corona epidemic, Russia's attack on Ukraine, drought and many other factors have led to an increase in food prices. The sharp increase in global prices of basic food is considered a serious threat to global development, which leads to a significant increase in poverty, a decrease in the level of nutrition, and limited access to services such as education and health. The increase in the price of food in the world markets will also affect the domestic markets of the countries, especially for the countries that are large importers of food and have experienced heavy inflation in their countries. Iran is one of the countries that import food in the world, so higher global food price will undoubtedly affect various economic sectors of Iran. Considering the negative economic and social effects of the unbridled increase in food prices, the impact of global food prices on domestic prices has been the focus of recent studies.Â Materials and MethodsComputable General Equilibrium (CGE) model is a system of equations that explains an economy in its general form and the interaction between its components. One of the types of general equilibrium models is the GTAP model. This model is specific to global trade analysis and is multi-regional. This model is static (one-period) and includes several economic regions, several economic sectors, and a fixed amount of several production factors. The simulations will be done using the Run-GTAP software. This database has 129 districts and 57 economic sectors. In this study, two areas are considered; which includes Iran (IR) and the rest of the world (ROW). In the database software, all goods and economic sectors are grouped in 57 categories, which can be grouped in a maximum of ten categories or less. Here are four economic sectors: agriculture, industry and mining, oil and services, and three factors of production including labor, capital and land are considered.Â Results and DiscussionIn this study, the political experience of a 30 percent increase in the global price of agricultural goods will be examined. With a 30% increase in the global prices of agricultural products, the amount of demand reduction in the agricultural sector as a percentage of changes is equal to -1.37. As a result of the political shock the per capita utility of the private sector household has decreased by 1.32% and the per capita utility of the public sector has decreased by 2.14%. Also, the decrease in equivalent change as a welfare index is equal to -3349.05 million dollars. In a static model, the factors of population, technology and investment are assumed to be constant, so the amount of their change is zero, but in dynamic models, the positive or negative effects of these three factors can also be observed. Here (30% price shock on agricultural goods) efficient allocation is the most important factor affecting welfare (negatively).Â ConclusionIran is one of the importing countries in the past years in terms of grain demanding, and due to successive droughts and failure to observe a serious cultivation pattern in this area, it has faced the weakness of supplying part of its food needs. This forced Iran to import grains and food from other countries in the world, especially Russia. According to the increase in the food price index in the world, the possible effects of the increase in the global food price (30% shock) for Iran have been estimated using a global general equilibrium model. The results show that if the price of agricultural products in the world increases by 30%, the consumer price in Iran will increase in the agricultural sector and decrease in other sectors. Also, the amount of consumer goods will decrease in all sectors, while the amount of consumption of domestic goods will increase, except for the service sector, and the amount of consumption of imported goods will decrease in all sectors, especially the agricultural sector. In addition, the results show that the amount of production in the agricultural and oil sectors increases and has decreased in other sectors. Based on the EV welfare criterion, the welfare level of the private household decreases and the results of the welfare analysis show that the most important factor influencing the welfare is the effects of resource allocation (efficiency).

Authors and Affiliations

Parviz Rostamzadeh,Marzieh Rassaf,

Keywords

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EP ID EP736713
DOI https://doi.org/10.22067/jead.2023.82713.1197
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