Impact of Supportive Policies on Price Deviation in Iranian Manufacturing Industry

According to empirical evidence, the consequences of supportive policies will not necessarily lead to efficient industries, optimal allocation of resources, international competition, and optimal use of opportunities. Inappropriate or suboptimal use of the supportive policies in manufacturing industries may change the direction of scarce resources and the relative prices in the society which may lead to price distortion and some monopoly power in the country's industries.  In this study, using the Hall-Rager method, we analyzed the effect of supportive policies on price deviation in the Iranian manufacturing industries. To do this we used the Herfindahl index, the simple rate of tariff, and Implicit nominal support index as independent variables and the price deviation in the manufacturing industries of the country as a dependent variable. The model as a dynamic panel data has been estimated with the generalized method of moments for 92 industries based on the four-digit ISIC code during 2004-2014. The results showed that between the years 2004 to 2014, the highest level of simple tariff rate was for the shoes and clothes industry with 100 percent. The cement and plaster industry had the most implicit support amongst the  92 studied industries. According to the estimated models, centralized industrial structure, implicit nominal support, tariff rate, and barrier entry intensity have had a positive and significant effect on the formation of price deviation in Iran's manufacturing industries.