The Impact of Improving Business Environment on Trade: A Case Study of Iran's Major Trading Partners

Countries around the world apply various tools and policies to obtain higher levels of growth and development. One of these tools is trying to expand the business structure to support greater integration and participation in the world trade. Trade development is influenced by several factors that business environment is seem to be one of these factors. The business environment refers to all factors affecting the business of enterprises that are beyond the control and domination of firms. The World Bank has been a good guide for investors and planners by publishing the Doing Business Report. This report has been published since 2004, so that the report of 2017 surveyed 190 countries and 11 indicators. According to the World Bank's 2017 report, Iran ranked 120th in the world. Business environment can play an important role in gaining a greater share of the global trade by providing more liberal trade and lowering legal constraints and additional transaction costs. Improper business environment will increase production costs by raising the costs imposed on the environment, such as fluctuations in power outage, bribery and judicial system problems, and it will reduce the competitiveness of the country in international trade. Accordingly, considering the key role of foreign trade in conducting economic development plans and promoting economic globalization, it is important to observe how business environment indicators affects the exports and imports.

This study investigates the impact of business environment indicators on exports and imports among 30 countries, during the years of 2004-2014 with GMM method. The sample countries have been selected as Iran's major trading partners by using Iran's Foreign Trade Statistic Yearbook, considering their export and import value with Iran. The required data have been extracted from WDI and Doing Business databases. In this study two export and import models have been used and the impact of business environment indicators is measured on them. The econometrics model is based on Gani and Celemes model (2013).   Findings The findings reveal that improve of business environment indicators has a positive impact on exports and imports. Among the 7 indicators used in this study, the indicators of “Starting a Business, dealing with Construction Permits, Trading Across Borders, Contract Enforcement and Resolving Insolvency” have positive and significant effects on export. About the import model also, improve of all indicators have positive and significant effect on imports, excepting the indicator of “Dealing with construction permits”. So improvement of business environment can boost foreign trade and increase exports and imports. Since economic development is based on the competitiveness of countries, a clear and healthy business environment results in positive economic outcomes, such as foreign trade growth, economic growth and industrial development.

Some important sub-branches of business environment indicators are about the number of steps and process time. Making some adjustments and simplifying their process can lead to significant improvements in business environment, but it requires a sustainable and coherent planning. One of the foundations of the business environment is to develop private sector, which is depended on a complex set of rules, physical and institutional infrastructures, economic stability, direct and indirect foreign investment and else. Institutional reform policy can be effective in accelerating improve of business environment, but it is a long-term issue and it cannot be achieved only by legislation and creation of formal institutions. In fact, institutional change involves a change in the system of informal institutions and cognitive structures of the people of the countries.