Application of Trade Gravity Model between Iran and Main Trade Partners (Panel Data Approach)

 

Volume 4, Issue 4, Number 6, Pages 86-108, Published Online Oct 20, 2016

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Author(s):

Dr. Majid Feshari

ABSTRACT:

The main objective of this paper is to test the Dutch Disease hypothesis in the Iranian economy by application of trade gravity model. This study tests the Dutch Disease hypothesis on the country’s non-oil exports which are a combination of exports from the manufacturing, mining and agricultural sectors. The econometric model has been estimated by using of panel data approach during the 1990-2015 Empirical results indicate that the oil exports instead of shrinking the country’s non-oil exports have had an expansionary effect on it. In addition, for test of robustness, we use oil price variable instead of oil exports, and the findings still show that oil price has a positive and significant effect on the non-oil exports. Hence, the existence of Dutch Disease in Iran is rejected. In other words, there is no evidence of the adverse economic effects of oil booms on the non-oil exports in Iranian economy.

KEYWORDS:

Dutch Disease, Panel Data Approach, Gravity Model, Trade Partners.

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