Evaluating H-O-V Approach in Iran’s Trade Relationship with its Partners

Abstract

In this paper, trade relationship between Iran and its main trading partners (including China, UAI, Iraq, Turkey, South Korea, India, Japan, Russia and Germany) based on Heckscher-Ohlin-Vanek (H-O-V) theory is studied in order to evaluate the development of trade relationship in export factor intensity framework. Considering several production factors such as labour, physical capital, knowledge capital, R&D expenditures, productivity and energy as countries export factor content from 1990 to 2020 is the innovation of the study. Regarding the allocation of R&D expenditures in trading relationships between developed and developing countries does not have same distribution, and its type of relationship with export based on experimental literature is not predictable, since the variable has different behaviour in various studies. Therefore, the analysis of mutual relationships is not limited to a parametric relationship. Nevertheless, other factors have a distinct and parametric effect on the trade, thus semiparametric method was applied to model Iran’s export supply in relation with its trading partners. The empirical results showed that productivity, human capital, and knowledge capital, which are the main trade factor content, have the most influence on Iran export flow and its trading partners. Additionally, the nonparametric part of the model implies a higher percentage of R&D expenditures affects significantly Iran’s export flows.