Effect of the Imported Competition on labor Productivity in Iranian Industries

Foreign trade growth and development of commercial relations, through importing the cheaper intermediate inputs and learning from the transfer and diffusion of knowledge lead to greater competition among the domestic industries. Therefore, by the expansion of competition, domestic enterprises use efficiently the existing resources and improve their productivity.
Despite various plannings for the industrial sectors in the Economic, Social and Cultural Development Programs which are targeted toward increasing the country’s value-added and employment level, the policymakers mainly focused on the development of export industries and encouraging the exporters while the most of Iranian industries strongly dependent on imported raw materials, intermediate and capital goods.
This paper studies the impact of the imported competition from Iran's most important trading partners on labor productivity by using the dynamic panel data estimator. In this regard, we use data from 131, 4-digit manufacturing for Iranian industries during 1992-2012. The results show that impact of imported competition on labor productivity is greater in the trade with four developed trade partners rather than four developing trade partners. In contrast, trade liberalization and the size of the industry, as a measure for the size of the domestic market, had a negative impact on the labor productivity.