Does Gravity Mode
Does Gravity Model Work for the Selection Trade Partners Among SCO Members? (The Case Study of Iran)
Mehdi Taghavi*, Bita Shaygani**, Farhad Gaffari, Abdolali Monsef** and Ali Niakan Lahiji****
* Department of Economics, Allameh Tabataba’i University, Full Professor.
** Department of Economics, Payam Noor University, Assistant Professor.
*** Department of Economics, Azad University, Assistant Professor.
**** Department of Economics, Payam Noor University, PhD Candidate.
Abstract: The membership in Shanghai Cooperation Organization (as an observer member) and the escalation of challenges between the West and Iran has shifted the trade preferences of this country to the East and south East Asia. Using gravity model and panel data, we will study this new shift toward East and south East Asian countries in Iran's trade relations. Our results confirm high competence of gravity model for explaining the trade trend between Iran and these countries. This study shows that the volume of trade between Iran and those countries will increase through joining that treaty and enjoyment from existing trade complementariness. This fact is compatible with intra-industry trade in Hechscher-Ohlin model; in other words, the trade structure is primarily complementary and not competitive (substitution). The insignificance of political risk parameter in this model shows that we cannot explain the inclination of Iran's trade towards China and Russia with this individual parameter. Furthermore, increasing liberalization of trade has positive effects on trade volume with the members of this treaty.
[Mehdi Taghavi, Bita Shaygani, Farhad Gaffari, Abdolali Monsef and Ali Niakan Lahiji. Does Gravity Model Work for the Selection Trade Partners Among SCO Members? (The Case Study of Iran). J Am Sci 2012;8(10):747-753]. (ISSN: 1545-1003). http://www.jofamericanscience.org. 100
Keywords: Gravity model, Shanghai Cooperation Organization, International trade, International economy. Full Text 100