Comparative analysis of the Linder Hypothesis (The): The bilateral trade model between Iran and It’s trade partners

This study examines the “Linder theory” for bilateral trade of Iran. This theory is one of the main theories of the international trade based on the demand side. The Linder hypothesis implies that the more similar the demand structure of two countries is , the more intensive is the potential trade between these two countries. In the post-Revolution era, Iran’s trade direction and pattern have been changed. Presently, trade partners with higher per capita income are replaced by countries with lower per capita income. During the time period of this study 1992-2012, Iran has been considered as a developing country. It appears that Iran is trading more with developing countries. To test the validity of Linder theory, data related to 127 countries including Iran and its trading partners for the period of 1992-2012 is included as cross-sections in three models, which are fixed-random effects models, and two gravity models. Countries are divided into five groups which are Base group (Including all countries), high-income, upper-middle income, lower-middle income and low-income. In this study, Linder effects describe the effect of dissimilarity of Per Capita GDP of Iran and its trading partners on bilateral trade. Empirical estimations of this study suggest that there is a strong Linder effect for bilateral trade, which implies that there is also the Linder effect for trade in developing countries. Most of empirical studies have been testing Linder’s theory for developed countries. Since there are few studies about the Linder effect in developing world, this study also provides insight to prove Linder’s theory among developing countries. However, the Linder effect is not the only factor that affected trade pattern and direction of Iran. Political factors such as ideology of the Islamic Republic of Iran, international sanctions imposed on the country, domestic political instability, and other factors such as economics size of trading partners, distance among them as a proxy for transportation cost, common borders, etc affected bilateral trade

A Survey on the Share of Terms of Trade Changes on the Exchange Rate Uncertainty in Iran's Economy

The terms of trade is one of the important tools for the macro-economic analysis and the most principle issue in this analysis is a dual relationship between the terms of trade and the exchange rate. The changes in the relative prices are the consequent of the fluctuations in the   terms of trade and exchange rate. This paper focuses on the short-run and long-run effects of the terms of trade  on the exchange rate in Iran's economy  during 1959-2004,by using the:ARDL(Auto-Regressive Distributed Lag Model),VECM(Vector Error Correction Model)and the impulse response function of VAR(Vector  Auto-Regressive). The results show that although there is a relationship between the terms of trade and exchange rate but the impact of the terms of trade shocks on the exchange rate fluctuation is petty and the main changes of exchange rate in Iran is the consequent of itself.GDP has a positive effec            on the terms of trade improvement and congruently the terms of trade improvement reduces inflation. The other result signifies that the terms of trade has a negative effect on the economic growth. This is the consequent of adoption of wrong economic –commercial policy