The Impact of Trade Openness on Poverty in Iran: Simultaneous Equations System Method

It is often argued that open economies grow faster than closed economies. Considering the potential and significant role of trade on economic growth, the purpose of this study is to investigate the relationship between trade openness and poverty during the 1973 to 2013 in Iran. Theoretical literature argued that, trade openness affects poverty through multifaceted channels, andthere is also evidence that these channels may often interact dynamically over space and time. Hence the trade-poverty linkage is rather complex and heterogeneous, and the single-equation approach may have difficulties in taking into account these all impacts. Therefore, in order to consider the impact of these multiple channels of influence, simultaneous equations system approach and three-stage least squares estimator is applied in this research. The findings of this study indicate that, trade openness leads to increase economic growth, and through economic growth it then affected poverty indirectly. The results also show a direct relationship between real GDP and inequality. So that inequality is increased along with economic growth during the period under study. Based on the results of this research, globalization had also an increasing effect on poverty during the study period. Finally, trade openness directly increased poverty during the period of the study too.