Abstract
This thesis undertakes theoretical and empirical analysis of the effects of protection on resource allocation in Iraq and considers the implications of growth in protected industries on economic welfare. Chapter I describes the structure of the manufacturing sector and its salient features. Chapter II discusses and analyses the government policies to promote industrialisation. Chapter III examines the effects of protection on resource allocation in terms of the standard theory of effective protection. Following that an alternative model is introduced: this latter incorporates the main features of the Iraqi industrial sector, namely the role of the government in regulating the growth of firms and entry of new firms, and administrative pricing and absence of competitive forces; this model predicts that industry growth is influenced by the height of its price-cost margins. The estimates of the various measures of protection, the price-cost margins and resource allocation are presented in Chapter IV. In Chapter V the two models are tested by using regression analysis and their results compared. It was found that the model that incorporates the price-cost margins explains industrial growth better than the standard model of effective protection. Chapter VI considers the welfare implications of growth in protected industries in terms of the standard theory of immiserizing growth. Then, in Chapter VII, I examine the welfare implications derived from my alternative model on the Iraqi economy. Finally, using these models I estimate the likelihood of welfare losses from growth in protected industries. The results show that the share of welfare reducing industries in total manufacturing output ranges from 22%-39% according to our model while the corresponding share implied by the. effective tariff model is 53%. The implication of the study is that the protection to high cost domestic industries has caused welfare losses and that in future, periods stricter economic criteria should be used in the choice of industries to be set up and encouraged.