Evaluating the Heckscher-Ohlin-Vanek (HOV) Approach in expansion of Iran's Trade Relations with its Trading Partners

Enhancement of two-factor model by adding more factors such as human capital, knowledge capital and R&D expenditure implies the actual economic advantages, which provide policy makers with priorities and requirements of export development strategies. This paper has studied Iran's trade relations with its major trading partners (China, UAE, Iraq, Turkey, South Korea, India, Japan, Russia and Germany) based on the Heckscher-Ohlin-Vanek (HOV) approach, in which the expansion of trade relations could be evaluated through a framework of factor intensity. The innovation of this study is thus to define several factors, including skilled labor, unskilled labor, human capital, physical capital, knowledge capital, research and development (R&D) expenditures, productivity and energy, as the factor content of the countries’ exports during 1990-2016. According to R&D expenditure which has uncertain effect on exports and do not follow a particular distribution function among countries as well as industries, its effect can be considered as nonparametric, while other factors should have parametric effects on comparative advantages of exportable goods and services. Therefore, in this paper, a semi-parametric method has been used to specify the panel export model for Iran and its major trading partners. The empirical results have shown that among the considered factors, human capital, skilled labor and knowledge capital have had the most pronounced parametric effects on the export advantages of the countries. Additionally, the nonparametric part of the model has implied that a higher percentage of R&D expenditure has influenced significantly exports of these countries. JEL Classification: C14, F14