Survey the Effect of Tariff Rate on Intra-Industry Trade in Iran (Case Study: Trade between Iran and Germany)

Abstract

This study tries to estimate and calculate intra-industry trade and to examine the effect of tariff rate on intra industry trade of Iran and Germany based on data collected in the period of 2004-2008. Using Grobel-Lloyd Index, we measure intra-industry trade in 8th level of HS classification. Then, by three methods of Green-away, Hine and Milner(1994), Fontagne and Freudenberg (1997) and Azhar and Elliott (2006), different types of intra-industry trade (horizontal or vertical) have been determined. Finally, the effect of tariff rate on intra-industry trade has been estimated using panel data. The results show that this type of trade has been low between Iran and Germany and most of it has been vertical along with low quality. Also the effect of tariff rate on intra-industry trade has been negative and significant. All in all, our results suggest that trade policy and foreign trade of Iran should provide condition in a way that the economy can benefits from this type of trade; And it shows how much tariff rates are important in this field.

Keywords

• horizontal intra-industry trade
• vertical intra-industry trade
• effect of tariff