Investigating the Effect of Smuggled Goods and the Degree of Trade Openness on Economic Growth in Iran

Smuggling of goods has become one of the controversial issues of recent years around the world as a threat to various political, cultural, military, social and especially economic spheres. While most economic studies focus on the theoretical aspects of smuggling and the analysis of its welfare effects, only a very limited number of studies have empirically addressed this complex phenomenon. The present study investigates the effect of smuggling of goods and the effect of the degree of trade openness on economic growth in Iran during 1979-2015 using a Vector Auto-Regressive model (VAR).The results indicate a negative relationship between smuggling of goods and economic growth and a positive relationship between the degree of openness of trade and economic growth in Iran in the long run. Also, the results indicate a positive impulsive reaction of smuggling to a standard deviation of positive shock in the index of openness index.