Economic Research and Perspectives

Economic Research and Perspectives

Customs Tariff Exemption and Performance of Free Zones A Dynamic Stochastic General Equilibrium Model

Authors
Fatemeh Etemadmoghadam 1
Majid Sameti 2
Sara Ghobadi 3
Mansour Mahinizadeh 4
1 Ph. D. Student of Economics, Department of Economics, Islamic Azad University, Khorasgan Branch, Isfahan, Iran.
2 Professor of Economics at University of Isfahan, Iran
3 Assistant Professor of Economics, Department of Economics, Islamic Azad University, Khorasgan Branch, Isfahan, Iran
4 Assistant Professor of Economics, Yazd University, Yazd, Iran
10.48311/ecor.2025.13658
Abstract
In an effort to achieve economic growth and development, free trade zones in Iran began operating in 1993 with the approval of the relevant law, aiming to eliminate or minimize traditional barriers to trade. These zones have been considered a tool for realizing outward-looking development strategies, with an emphasis on export promotion. They were established to bring benefits such as increased investment, improved production, technological advancement, higher employment, and export growth.

The purpose of this research is to analyze the impact of customs tariff exemptions in free zones on the macroeconomic variables of the Iranian economy using the Stochastic Dynamic General Equilibrium (DSGE) method. This method is appropriate for analyzing the dynamics resulting from model shocks within the general equilibrium framework of the Iranian economy.

The simulation of customs tariff exemption shocks in free zones in this study shows that increasing such exemptions leads to higher foreign direct investment, greater capital accumulation, and increased employment. Additionally, while exports from the free zones increase, exports from the mainland decrease

Aim and Introduction

There are many models and tools to communicate with the international economy and use its capacity to exploit for the benefit of the domestic economy. One of these famous models is the establishment of free zones and attracting international capital through these areas. According to the definition in the Kyoto Convention, a free economic zone is a part of the mainland where the exchange of goods is considered beyond the existing restrictions in the mainland and is not bound by the customs and tax laws of the mainland. Free zones have different economic regulations from other parts of the mainland. The differences can provide the basis for attracting capital, commercial prosperity, and economic growth. To grow and develop these areas, countries use various incentives such as legal, tax, customs, and financial incentives.

Methodology

The term general equilibrium in this method means that all the markets included in this structure must be in balance. In other words, the market settlement condition must be established. This means that in the general equilibrium model, all variables are assumed to be endogenous and non-constant, and this is contrary to the partial equilibrium structure, where the variables of other markets are assumed to be constant. This research analyzes the impact of customs exemption on imported goods in free zones in the form of the DSGE method with a neoclassical pproach. All the relationships necessary to explain the effectiveness of this incentive according to the theoretical foundations, the selected goals of the establishment of regions in Iran and their performance have been stated, and other relationships in other economic sectors have been considered to complete the model. The parameters of the model are also estimated according to the calibration method and using calculation software and econometric estimation. The performance of the model is evaluated by comparing the widths obtained from the simulation of the model and the torques of the real data. Finally, the simulation of the model can be seen by applying impulses.

Findings

In this study, the simulation of customs duty exemption impulses in free zones shows that applying impulses to increase import exemptions to free zones, leads to an increase in foreign direct investment, an increase in capital accumulation, an increase in exports of free zones, and finally, an increase in employment. As the export in free zones increases, the export of products from the mainland decreases.

Discussion and Conclusion

The results of applying the impulse effect of reducing import tariffs in free zones indicate that the intensity of the increase in the exemption of import tariffs for goods to free zones leads to an increase in foreign direct investment, an increase in the amount of investment, an increase in capital accumulation, an increase in the export of free zones and finally, the increased employment rate. In terms of export and domestic production, with the application of tariff reduction, imports in free zones will increase and exports from the mainland will decrease, and due to the weight of exports from the mainland compared to free zones, the total exports of the country will decrease.
Keywords
Free Zones
Customs Tariff
Stochastic Dynamic General Equilibrium Model
Legal Exemption
Export

Subjects

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