Iran`s Intra-Industry Trade Based on a Schumpeterian Factor Endowment Model

The role of intra-industry trade has been emphasized in international commerce since the 1960s. Innovation and government size, which affect goods and services production and government presence in international commerce, have also been highlighted since then. This study examines the influence of these two factors on international trade and estimates their effects in linear and logistic transformation models from the years 2000 to 2016 using HS four-digit codes. This research focuses on 20 main import and export industries of Iran and selected commercial partners. The authors estimate the model using the bidirectional panel data method and analyze the data using Stata 15 software. Results indicate that in both models there is a U-shaped relationship (non-linear) between innovation and intra-industry trade. However, government size increases intra-industry trade in these models. Linder variables decrease intra-industry trade but GDP per capita increases intra-industry trade. Other control variables (geographical distance and membership in economic organizations) show the expected impact on intra-industry trade.