Document Type : Original Article


1 PhD Student in Economics, Department of Economics, Payam Noor University, Tehran, Iran.

2 Professor, Department of Economics,, Payam Noor University, Tehran, Iran.


In the new theory of international trade, the deficiency in competition has been emphasized and the role of factors such as economies of scale and variety is taken into consideration. Car world market is also hugely dependent on economies of scale. Firms with sufficient scale and economies of scale are successful in this market. The main purpose of this study is to measure economies of scale in Iran's automotive industry and also to evaluate the welfare effects of variety of automobile imports in Iran. To calculate the economies of scale in automotive industry, Translog production function with input cost share equations and seemingly unrelated iterative regression estimation method were used during the time frame of 2002 to 2018. The research findings confirm that the Iranian car companies are in the descending area of the average cost curve, it means they have not yet benefited completely from advantages economies of scale. As well as in this study for evaluating the welfare effects of variety in imports of Iran's automotive industry, Feenstra and Broda & Weinstein methods has been used. The amount of product variety has been measured by product-level import data and the six-digit codes Harmonized System (HS) classification. The results suggested that the increasing in variety of imported cars leads to increasing in consumer’s welfare and vice versa.


Main Subjects

Armington, Paul S. “A Theory of Products Distinguished by Place of Production.” Palgrave Macmillan Journals 16, no. 1 (March 1969): 159-178.
Bakhshudeh, Mohammad, and Zakaria Farajzadeh. “Impact of Import Tariff Reduction on Iranian Agricultural Macro Variables and Rural Welfare.” Quarterly Journal of Agricultural Economics and Development 20, no. 77 (Spring 2012): 217-254. [In Persian]
Broda, Christian, and David E. Weinstein. “Globalization and the Gains from Variety.” Quarterly Journal of Economics 121, no. 2 (May 2006): 541-583.
Chan, M. W. Luke, and Dean C. Mountain. “Economies of Scale and the Tornqvist Discrete Measure of Productivity Growth.” The Review of Economics and Statistics 65, no. 4 (November 1983): 663-667.
Chen, Bo, and Ma. Hong. “Import Variety and Welfare Gain in China.” Review of International Economics 20, no. 4 (August 2012): 807-820.
Demidova, Svetlana, Costas Arkolakis, and Peter J. Klenow. “Firm Heterogeneity and International Trade, Endogenous Variety and the Gains from Trade.” American Economic Review: Paper & Proceedings 98, no. 2 (May 2008): 444-450. 10.1257/aer.98.2.444.
Diewert, W. Erwin. “Exact and Superlative Index Numbers.” Journal of Econometrics 4, no. 2 (May 1976): 115-145.
Feenstra, Robert C. “New Evidence on the Gains from Trade.” Review of World Economics 142, no. 4 (December 2006): 617-641. 10.1007/s10290-006-0086-4.
Feenstra, Robert C. “New Product Varieties and the Measurement of International Price.” The American Review 84, no. 1 (March 1994): 157-177.
Funke, Michael, and Ralf. Ruhwedel. “Trade, Product Variety and Welfare: A Quantitative Assessment for Mainland China.” China Economic Journal 1, no. 2 (June 2008): 203-212.
Helpman, Elhanan, and Paul. Krugman. Market Structure and Foreign Trade. Cambridge: The MIT Press, 1985.
Khalili Asl, Maryam, Saeed Rasekhi, and Somayeh Shahhoseini. “T The Study of Welfare Effects of Import Variety in Iran.” Industrial Economics Researches 3, no. 9 (December 2021): 7-18. [In Persian]
Khodadad kashi, Farhad. Industrial Economics (Theory and Practice). Tehran: Samt, 2012. [In Persian]
Kim, H. Youn. “The Translog Production Function and Variable Returns to Scale.” The Review of Economics and Statistics 74, no. 3 (August 1992): 546-552.
Krugman, Paul R. “Intraindustry Specialization and the Gains from Trade.” Journal of Political Economy 89, no. 5 (October 1981): 959-973.
Krugman, Paul. “Scale Economies, Product Differentiation, and the Pattern of Trade.” The American Economic Review 70, no. 5 (December 1980): 950-959.
Michael, Berlemann, and Jan-Erik. Wesselhoft. “Estimating Aggregate Capital Stocks Using the Perpetual Inventory Method: A Survey of Previous Implementations and New Empirical Evidence for 103 Countries.” Review of Economics 65, no. 1 (April 2014): 1-34.
Minondo, Asier, and Francisco, Requena. “Welfare Gains from Imported Varieties in Spain, 1988-2006.” WP-EC 12 (November 2010): 1-27.
Mohler, Lukas, and Michael Seitz. “The Gains from Variety in the European Union.” Review of World Economics 148, no. 3 (September 2012): 475-500.
Mohler, Lukas. “Variety Gains from Trade in Switzerland.” Swiss Journal of Economics and Statistics 147, no. 1 (December 2011): 45-70.
Montazeri, Jalal, and Mehdi Zahed. “Regulatory and Concentration in the Iranian Automotive Industry.” Industrial Economic Researches 3, no. 10 (March 2021): 89-106.  [In Persian]
Pahlavani, Mosayeb, Kamran Barghandan, and Mohammad Nabi Shahiki Tash. “Estimating Market Power and Strategies of Automobile Industry in Iran (Saipa and Iran Khoddro Companies Case Studies).” Quarterly Journal of Applied Economics Studies Iran 8, no. 29 (Spring 2021): 73-95. [In Persian]
Porter, Michael. Competitive Advantage of Nations. New York: Free Press, 1998.
Ryu, Sang-Lyul, and Jayoun. Won. “Scale economies in the Korean airline industry since the entry of low-cost carriers, Int. J.” Economic Policy in Emerging Economies 12, no. 2 (May 2019): 149-157.
Sato, Kazuo. “The Ideal Log-Change Index Number.” Review of Economics and Statistics 58, no. 2 (May 1976): 223-228.
Seifi, Ahmad, and Mohammad Reza Dehghanpoor. “Demand for Inputs, Economies of Scale and Technical change in Iran’s Electricity Generation Industry during 1350-1386.” The Journal of Economic Policy 6, no. 12 (2014): 48-81. [In Persian]
Shahiki Tash, Mohammad Nabi, and Emad Kazemzadeh. “The Assessment of the Market Structure of Car Industry in Iran.” Quarterly Journal of Fiscal and Economic Policies 1, no. 3 (2013): 139-164. [In Persian]
Shahiki Tash, Mohammad Nabi, Farhad Khodadad kashi, and Ali Norouzi. “The Relationship among Profitability Index, Concentration Ratio, and Economies of Scale in Iranian Manufacturing Industries.” Iranian Journal of Economic Research 19, no. 59 (July 2014): 39-71. [In Persian]
Spence, Michael. “Product Differentiation and Welfare.” American Economic Review 66, no. 2 (May 1976): 407-414.
Truett, Lila J., and Dale B.Truett. “The Italian Automotive Industry and Economies of Scale. Contemporary Economic Policy.” Western Economic Association International 21, no. 3 (July 2003): 329-337.
Vartia, Yrjö O. “Ideal Log-Change Index Numbers.” Scandinavian Journal of Statistics 3, no. 3 (January 1976): 121-126.
Yu, jeong-Joon, Seung-Hoon Yoo, and Chulwoo. Baek. “Economies of Scale in the South Korean Natural Gas Industry.” Energies 12, no. 8 (April 2019): 2-10.