Abstract
In early 2002, the Iranian government began instituting a number of marketoriented reforms, including exchange rate unification, trade reforms, ratification of the law on foreign investment, tax reforms, and the licensing of three private banks. In recent years Iran has applied for membership in the World Trade Organization (WTO). These steps are aimed at rectifying distortion and structural imbalances, which have prevailed since the Islamic revolution of 1979, and mark the first concerted effort by Tehran to shift from autarkic and isolationist economic policies of the post-revolution period to a growth-oriented approach.
Here I provide a qualitative assessment of the current economic reforms with respect to their urgency, context, content, and effectiveness. What is the “structural trap” preventing Iran from approaching its full potential in terms of efficiency and employment generation? Are current reforms facilitating the transfer of resources from low-return investments to high-yield ones? What factors and circumstances slow down the pace and effectiveness of the current reforms?
The paper consists of four sections. The first section examines the exigency of the current reforms and provides an analysis of the relative performance of the economy since 1980. Then second section highlights the structural rigidities of the economy, most notably the dominance of inefficient state owned enterprises, and the role of revolutionary organizations and labor market regulations. The last section addresses the impact and effectiveness of recent reforms.
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