Regional Trade Arrangements and Optimal Tariff Calculation according to Armington Hypothesis

Document Type : Research Paper

Authors

Department of Economics, Faculty of Economics and Social Science, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

10.22059/ier.2024.358207.1007697

Abstract

Disciplined international competition and formal agreements worldwide would potentially prevent the mistakes of domestic policies, thereby resulting in more stable economic growth. This article aims to investigate the results of concluding agreements between the regional countries, especially regarding the Iraqi market as a target market, using a Computable General Equilibrium Model. To this end, the model parameters were calibrated, and then different aspects of concluding the agreement were examined. The welfare effects were investigated by estimating the competitive equilibrium model. Next, the simulation results were analyzed according to the non-cooperative Nash equilibrium model by considering the interaction of countries and the methods of weighted coefficients and LP-Metric by GAMS software. The results indicate that concluding a regional agreement in terms of welfare according to the general equilibrium model using the Armington hypothesis would have the best possible result when the agreement is concluded between Iran, Turkey, and Iraq. The results of the scenario using the Nash tariff war to create trade rules with non-member countries also revealed that the welfare situation of countries is far worse compared to the competitive equilibrium. It was also found that the welfare level achieved by concluding an agreement between all the studied countries was as low as possible compared to other scenarios of the present study.

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Main Subjects

Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 12 February 2024

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