AN ECONOMIC STUDY ON THE EFFECT OF ENERGY SUBSIDY ON INDUSTRIES IN IRAN

Energy is known as an effective and strategic input in the consumption and production process. Energy subsidies which determined under the gap of domestic and regional prices have caused tremendous and non-economic increase in prices levels. Energy subsidies are posed one of the vital government policies to support the industries in Iran as well as in the entire world. This study by using EVIEWS software and applying three least square approach (simultaneous equations system) is trying to examine the effect of subsidies on the demand side of energy sector, productivity of industries and employment situation over 1998- 2009. Study is divided into four subsections. First part of study started with introduction of energy facts and figures in Iran and the entire world elaborately. Second subsection reviews former studies. At the third part, we introduce various equations and forms of simultaneous equations model and the main model specification. And eventually final part of paper represents conclusion and considerable recommendations for policy makers and students. The findings show that decreasing energy subsidies leads to down demand for energy. Meanwhile it finally causes to increase productivity of industry sector and employment rate.