Real Exchange Rate Effect on Non-Oil Trade Balance (Experimental Comparison of between Iran and Turkey)

This article studies the relationship between non-oil trade balance and real exchange rate in Iran, based on Rose and Yellen corrected model, by using annual data during period 1981 - 2013. First, in order to investigate the stationarity of variables, the augmented Dicky-Fuller test was used, and to check the validity of the Dicky-Fuller test, Perrone structural break test was applied. Moreover, in order to determine the long-run relationships and short-run dynamics between non-oil trade balance and real exchange rate, and also the GDP of Iran and that of Turkey, the ARDL model was utilized. Regarding to positive effects of real exchange rate on trade balance in the short run; devaluation policy can be useful for policymakers to improve non-oil trade balance of Iran-Turkey.but there is no long-run relationship between non-oil trade balance of Iran and its real exchange rate. Moreover, in the short and long-run, the GDP of Iran has negative effect on trade balance and the at of Turkey has positive effect on trade balance, which is based on macroeconomics theories.