The Effect of Import Competition on Total Factor Productivity of Iranian Industries

Today trade is the basis of development of any societies that with its expansion, the industrial enterprises, takes advantage of its benefits and enhances their productivity. Also they earn competitive advantage and further providing domestic needs, can capture the new markets. Among these, the role of imports in trade is very important because the import of capital and intermediate inexpensive goods, reduce production costs, create competitive environment and increase productivity.
In Iran, despite trade liberalization in 1989, policy makers and intellectuals has been toward to expanding exports, while the Iranian industry have enormous potential of production, It is strongly dependent on import of raw materials and intermediate and capital goods.
Therefore, in this study the impact of import competition on total factor productivity were studied during (1992-2012) by using dynamic econometric panel data. The results show that import competition has a positive impact on total factor productivity of Iranian industries. In contrast, trade liberalization and the size of the industry, as a criteria of the size of the domestic market, had a negative impact on total factor productivity.