An Application of Stochastic Frontier Gravity Approach (The Case of Iran's Potential Agricultural Exports)

Abstract

Agriculture plays a crucial role in Iranian economy in terms of food supply, job creation, food security, and foreign earnings. The main purpose of this study is to provide an estimate of the country's agricultural exports potential and to determine how efficient Iran is in realizing this capacity. Using data for 38 destination countries for the period spanning from 1982 to 2017, proper stochastic frontier gravity model was estimated. Main findings revealed direct and significant impact of trade partners' GDP and population on Iran's agricultural exports, while distance and border barriers imposed by destination countries show significant reverse effect. Furthermore, on average, 69 percent of the country's agricultural export potential has been realized through the study period. Measures to promote competitive exports along with pursuing free bilateral and regional trade agreements for removing border barriers are recommended.