Factors affecting intra-industry trade of Iran with regional Islamic blocs

In this paper، we analyze the determinants of Intra-Industry trade (IIT) in the agriculture، industry and service sectors between Iran and its trading partners، i. e. D8، ECO، GCC and OIC countries by using dynamic panel data and GMM during 1980-2009. This study uses country-specific characteristics such as economic size، per capita income، foreign direct investment، geographical distance، and trade imbalance as explanatory variables. The results indicate that economic size، per capita income، and geographical distance explain most of IIT between Iran and its trading partners. According to econometric findings، the economic size has high and positive correlation with IIT، however per capita income affects IIT، negatively. Thus، differences in aggregate demand and supply should be considered in selecting trade partners. The similarity in income structure leads to same demand structure and expansion of trade volume. In addition، geographical distance and trade imbalance has negative effect on IIT flow in Iran.