The Effect of Foreign Direct Investment on Iran-Turkey’s Intra-Industry Trade (IIT)

Document Type : Research Paper

Authors

1 Professor of Economics, Department of Economics, University of Isfahan, Isfahan, Iran

2 Assistant Professor, Department of Economics, ShahidBeheshti University, Tehran, Iran

3 PhD Candidate, Department of Economics, University of Isfahan, Isfahan, Iran

4 MA in Economics

Abstract

Intra-industry trade (IIT) comprises of instantaneous imports and exports of goods and services which are handled in a same industry. The importance of IIT between trading partners refers to those tradable products that provide them with diversity and high technology. To expand its foreign trade relations, Iran indeed requires such trade patterns that include diversification of goods and services and hi-tech products as well.
Iran has expanded its economic relations through intra-industry trade with one of its largest neighbors, Turkey, during recent decades. Of major determinants, foreign direct investment (FDI) should play a crucial role in promoting bilateral intra-industry trade flows of both partners.This paper has thus tested the hypothesis of relationship between IIT and FDI of the countries.
Using panel data of both countries over the period 1996-2010, we have estimated an econometric trade model to explore the effect of FDI attraction on the bilateral IIT flows. The IIT indexes for commodity groups in form of two- digit ISIC have been measured using the Grubel-Lloyd approach.The empirical results have shown that attracting FDI has positively and significantly affected the Iran-Turkey bilateral intra-industry trade flows during the period under consideration.

Keywords

References

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Journal of Economic Research (Tahghighat- E- Eghtesadi)
Volume 49, Issue 4 - Serial Number 4
January 2015
Pages 961-983

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History

  • Receive Date: 26 April 2014
  • Revise Date: 09 September 2014
  • Accept Date: 30 September 2014

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