Effects of Foreign Direct Investment and Import Tariffs on Iran Car Industry

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Iran car industry is the country’s second-biggest industry after the petroleum industry. Iran started its Automobile industry in 1960. The first step taken by some young entrepreneurs was to produce The Body of Benz automobiles. By 1966 the company was able to assemble Hunter automobiles. In 1979 the first ‘Paykan’ was manufactured which was put out the production in 2005. Currently, Iran Khordro and Saipa are known as the main car producers among the other 25 automakers. Iran produces a wide range of cars including large buses and heavy automobiles, minibusses, heavy-duty trucks, medium-sized trucks, vans, motorbikes and passenger cars.In the last 12 years, the Iran automobile industry has grown rapidly, therefore, Iran is placed in the list of top 20 car producers internationally. Exporting of automobiles has also been started within the last 5 years, which now plays a major role in the Iran economy in the non-petroleum export category. However, the primary argument is that Iranian export remain very low compared to countries such as South Korea which started its car industry in the 1960s and currently ranked fifth largest in the world in terms of production volume and the sixth-largest in terms of export volume. Most courtiers who started their car industry within the last decades used FDI related strategies in order to develop their industry. These courtiers realized that FDI will result in increasing industrialization and stimulate economic growth. (Mekki, 2005)FDI or Foreign Direct Investment is an important contributor to the economic development of all the countries irrespective of developed, developing or underdeveloped. As per the economy watch definition, FDI is the investment that earns interest in enterprises that function outside of the domestic territory of the investor (Economy watch, n.d). FDI can be classified into two different categories. vertical and horizontal. Vertical FDI is a scenario in which an MNC owns the shares of a foreign enterprise.