The Effect of Trade Integration on the Efficiency of Iran’s Gas Trade Using the Gravity Model

Intra-industry trade (IIT) can raise trade integration among trading partners through expanding commodity circulation, reducing technology gap, and creating an economic scale. According to the role of trade integration in improving trade efficiency and the role of IIT in expanding trade integration, the aim of this study is to evaluate the effect of IIT indices as proxies for trade integration on the bilateral trade efficiency of neutral gas and other hydrocarbon gases among Iran and its major partners. Hence, this study tries to identify the determinants of bilateral trade flows of the selected products among Iran and its major partners using the Poisson pseudo-maximum-likelihood method during 1997-2016. Then, the bilateral trade efficiency of the selected products has been calculated using the Malmquist index. Finally, the effect of trade integration via IIT indices on the bilateral trade efficiency has been evaluated using the panel data method during 1998-2016. Based on the results, the GDP per capita, the difference of gas reserves, the common border, and the IIT indices have positive effects on the bilateral trade flows, while the coefficient of geographical distance is negative. The results also show that the relationship between the IIT indices and the bilateral trade efficiency is positive.
JEL Classification: C23, C67, F13, O47, Q43