Reviewing Iran’s Economic Convergence with Russia in CIS and The Marshall–Lerner Condition

Convergence with regional powers such as Russia, which has a common water border with Iran, as well as the population of 300 million in the CIS region, is a step toward the realization of what is meant by constructive and effective interaction with the world. The present study is based on the analysis of the factors affecting the economic convergence of Iran with Russia in the CIS region, based on the Panel Data approach during the period 1992-2015. Trade, production, population, and distance are the key variables of Iran’s gravity model with Russia in CIS region. The regression equation indicates the significance of the gravity model. Coefficients (elasticity) of the three independent variables including production, distance and Linder are 3.45, -3.25 and -0.38 respectively, which demonstrates the high sensitivity of the two variables of production, distance, and their significance but the dummy variable of the common water boundary isn’t significant due to the overcoming of the Azerbaijan’s dryland boundary. The elasticity of the foreign exchange demand for exports and imports between Russia and Iran are inelastic and equal to - 0.22 and - 0.28 respectively. The Marshall–Lerner condition refers to the condition that an exchange rate devaluation will only cause a balance of trade improvement if the absolute sum of the export and import demand elasticities is greater than unity, so the change in the exchange rate has no effect on the improvement of Iran's balance of trade.