An Analysis of the Effective Factors on the Iran's Trade Convergence with the Selected Regional Blocks (Application of a Gravity Model)

The long time passed since the commencement of globalization process has caused those countries who were not seeking achievement of a free market within the framework globalization to take benefit from regional-orientation as a solution for their foreign trade, as regional-oriented free market, is both cheaper and more accessible than globalization. This study tries to analyze the factors affecting the Iran economic convergence with the EU, D8, OIC, ECO, GCC, and ASEAN by using data over the period 1995-2009 based on the dynamic panel approach and the GMM method. In order to explain the bilateral trade between Iran and its trading partners, a gravity model has been used through revising the recent studies with a new emphasis. Based on the study findings, the Iran’s trade flow follows the Linder theory based on existence of a positive relationship between bilateral trade and income convergence. Meanwhile, the model estimations indicate that the economic size, income per capita and direct foreign investment have significantly direct effects on Iran’s bilateral trade flows with the selected regional blocks, while the distance has significantly affected such trade relations reversely.