Border Effect on Bilateral Trade of Iran and Major Partners: Approach of Non-Linear Gravity Model

The role of distance as border effects between trade partners has been created challengeable discussions in gravity model literature for international economists and lead to different theoretical aspects for measuring and modeling of it in recent years. Moreover, the necessity of non-linear method for estimation of gravity model has been perfectly agreed. The importance of this study is the estimation of border effects by using Poisson – Pseudo Maximum Likelihood (PPML).
Hence, this study tries to evaluate border effects on bilateral trade among Iran and major partners during 1988-2014 using non-linear method for gravity model.
The results show that coefficient of distance variable as proxy for border effects on trade relations among Iran and major partners has 0.28 and 0.94 in generalized least square and PPML methods respectively which it is relatively higher than other coefficients. Not being land-locked country, also could effect on trade relation and lead to increase it. As a policy recommendation, the role of distance and using maritime transportations to reduce it, should be considered.