The Effect of China's Monetary Policy on Degree of Openness of Iran's Economy

Globalization and the growth of trade among the economies, increase of the economies’ impact on each other and the economies that have a higher trade to GDP ratio (more open), are strongly influenced by global economy circumstance and particularly, their major trading partners. Accordingly, this study aimed to investigate the effect of China’s monetary policy on the degree of openness of Iran during 2002-2012. In this regard, the causalities between monetary and trade variables in two countries are analyzed. For this purpose, the study used vector error correction test, the Granger causality test and the Johansen – Juselius cointegration test. The results of this study indicate the effects of monetary policy are more effective on China’s degree of openness than Iran. Moreover, the Granger test results show that there is a bilateral relationship between these two variables. In other words, change in the money supply can affect the degree of openness, and openness can influence on the money supply in China and China’s degree of openness has a significant effect on Iran’s degree of openness.