Trade Flows Expansion and It’s Effect on Income Convergence between Iran and Middle East Countries

Abstract

The main objective of this paper is to investigate the possibility of a regional block implementation including Iran and other Middle East countries, and also it’s effect on trade relation and income convergence among members. Accordingly, a trade gravity model is specified in which economic structures of all trading partners and their social and cultural relations as well as integration and geographical distance explain trade flows and income convergence. We, therefore, use economic datas of 12 Iran’s trading partners in the region over 1993-2003 to estimate the models (both trade and convergence) by the panel data procedure. The empirical results indicate that trade integration between Iran and Middle East countries has a positive and significant effect on their trade relations, whereas trade expansion cannot convergence their incomes significantly.