Estimating Iran's trade potential with selected countries

Academic Thesis for the Master Degree "M.A"

Department: Business Management, Domestic Business Orientation

Abstract

Turning to regionalism and economic integrations is one of the solutions that developing economies adopt to deal with the phenomenon of globalization. The country of the Islamic Republic of Iran cannot accept or reject the conditions of globalization all at once. Therefore, commercial and economic issues should be solved on a smaller scale. In this regard, various economic integrations can bring the existing opportunities to the fore and clarify the problems and challenges of entering the globalization process. The current study aims to determine the commercial potential of Iran with 13 countries that have made up the largest volume of Iran's foreign trade in the last decade. For this purpose, we used the generalized gravity model and multivariate regression method with panel data was used to estimate it. The results of the research show that the most important variables affecting the volume of Iran's trade are gross domestic product per capita and the population of the countries, and the variable of geographical distance had a negligible effect. On the other hand, the largest trade gap in Iran is Turkey and England, and the smallest gap is the share of Afghanistan.

Key words: economic integration, globalization, gravity model, panel data, trade gap

Introduction

After the end of World War II, international trade grew faster, so that in recent years, the growth of world trade has been faster than world production. Meanwhile, the share of developed countries in trade has grown more than the total trade. In other words, international trade has been widely placed as one of the main components in the agenda of all countries, and the pressure of economic factors and the extraordinary growth of communication and telecommunication technologies have provided a new type of commercial relations between countries and different regions of the world. Also, the growth of commodity trade and foreign investments has increased the role of these factors in the economic growth of countries tremendously (Suri and Teshkini, 1390, 136). Therefore, the theory of economic integration implies the discriminatory liberalization of trade and it is defined as preferential trade of a group of countries of a region or a continent by applying trade discrimination against other countries of the world. Economic integration is a type of trade policy to reduce trade tariff restrictions between member states of the Union in order to promote economic growth and development. Of course, regarding the theory of economic integration, various theories have been proposed by economists. Supporters believe that with the establishment of an economic integration plan and a link between a group of countries, trade exchanges and economic cooperation between these countries will increase. In this case, the economic resources of these countries become one bowl and a larger economic system is obtained. The expansion of the market size and the difference in the pattern of costs has caused the division of labor and the reallocation of resources and will ultimately bring increased employment, increased production and increased welfare for the country (Shahrestani and Heydari, 2019, 5).

In the present study, the commercial potential of Iran has been discussed in order to form commercial integration with selected countries, so that the existing commercial gap can be evaluated. The current research is compiled in 5 chapters: The generalities of the research and its general framework, including the statement of the main research problem, objectives and assumptions, and finally, the appropriate method to answer the main research question.

In the second chapter, the problem of foreign trade potential has been examined from different dimensions. Therefore, the research literature has been discussed first, and then we have reviewed the studies conducted inside and outside the country. In the second chapter, the best and most appropriate research method was selected and explained. In the fourth chapter, after explaining the econometric model and specifying the appropriate model, it was estimated using the panel data method. Finally, in the fifth chapter, the results of the estimation are interpreted and then related solutions are presented.

1-2-Statement of the problem

Turning to regionalism and economic integration is one of the solutions that developing economies adopt to deal with the phenomenon of globalization and in this way protect themselves against the problems of globalization and gain access to a competitive advantage in the world market. In fact, understanding the commercial potential of the country as a step towards the global economy can, by removing customs barriers, give countries access to implement wider markets and remove barriers to the transfer of capital and technology and clarify the ambiguous points of economic globalization as an opportunity. Developing countries try to resolve commercial and economic issues on a smaller scale in order to provide the basis for promoting investment and economic growth (Taibi and Azarbaijani, 1380, 64). In this regard, various economic integrations can bring the existing opportunities to the fore and clarify the problems and challenges of entering into the globalization process (Shirinzadeh, 2010, 39). The countries that had the largest volume of trade with Iran in the last decade are examined and its effects on the bilateral trade flows of Iran are analyzed through the gravity model. In fact, the main problem of the present research is that there is a huge gap between the potential and actual trade of Iran with selected countries and all the potential of foreign trade has not been used. 1-3- Necessity and importance of the research In a world where the process of globalization has a significant speed, regionalism is very important, because intra-regional relations can facilitate globalization. Regionalism is carried out in a structure based on positive peace and often starts with non-political processes. (Simber, 1387, 114).

Diversifying export revenues and reducing dependence on oil revenues are among the concerns that have always been considered in development plans, and based on that goals and policies have been determined and measures have been taken. Despite the success in expanding non-oil exports, dependence on oil exports continues in the country. One of the measures to expand non-oil exports is to identify target markets. In order to identify the target markets, it is necessary to determine the potential capabilities that these markets have for exporting Iranian goods. After identifying the target markets (especially if these markets are regions that will provide more favorable conditions for Iranian goods in competition with similar foreign goods due to the reduction of transportation costs), bilateral or multilateral trade agreements can be concluded with these countries. (Shirinzadeh, 2011, 8)

Factors affecting the volume of Iran's foreign trade with countries that have had a large weight in Iran's foreign trade during the last decade, as well as determining Iran's commercial potential with selected countries. In fact, we are looking for an answer to the question, has Iran used all of its export and import capacity? And the gap between traders with which countries is more obvious?

Although the gravity model has been used to explain the trade relations of different unions, this has not been done for the countries considered in this research.

1-4-Hypotheses

There is a significant relationship between the gross domestic product per capita of Iran and the volume of trade exchanges.

Between the gross domestic product per capita of the selected countries and the volume of trade exchanges, the meaning of the relationship There is a significant relationship between the geographical distance of the countries and the volume of their commercial transactions. There is a significant relationship between the population of Iran and the volume of commercial transactions. There is a significant relationship between the population of the selected countries and the volume of commercial transactions. There is a significant relationship between the Linder index and the volume of commercial transactions.