Determinants of Iran's Export Diversification: Emphasis on the Cost of Entrance to Domestic and Foreign Markets

Abstract

This paper investigates the factors affecting export diversification in Iran. As deducted from heterogeneous trade theory, the main variables of interest in this paper's baseline specification are entry and trade costs. For this purpose, Theil index is calculated for export diversification. This index is obtained for ten selected two-digit commodity codes in the HS coordinate system. Then the basic model is introduced and estimated by the generalized least squares (GLS) method. Estimated results show that diversification depends negatively on domestic and foreign market entry costs. Therefore, reducing the unnecessary rules for setting up enterprises, customs regulations, creating transportation and financial facilities can help to improve the Iran's export diversification.

Keywords

• export diversification
• foreign market entry costs
• domestic market entry costs
• real effective exchange rate
• effective tariff rate