The Impact of Neighborhood on Iran’s Intra-Industry Trade (A Spatial Panel Econometric Approach)

Abstract

he main purpose of this research is to answer the question that "How neighborhood of Iran's trading partners will have an effect on Iran intra-industry trade? For this purpose, the impact of spatial neighborhood effects of 23 major trade partners on Iran's intra-industry trade for the period of 1995-2014, has been investigated through Spatial Panel Econometric and Maximum Likelihood Estimator (ML). By using the Spatial Autoregressive (SAR) Model and Geographic Distance Matrix, neighborhood effects have been investigated. The results gained from spatial neighborhood effects estimates showed that the neighborhood of Iran trade partner countries had a negative effect on Iran's intra-industry trade. It was also found that differences in market size, exchange rate volatility, trade orientation, and geographical concentration had a negative effect and economic growth, Linder Effect, exchange rate, and volume per capita trade had a positive effect on intra-industry trade. Accordingly, it is recommended that Iran has more trade with Belgium, India, Korea, Netherlands, Iraq, Saudi Arabia, and Singapore.