Analysis of Indo - Iranian Trade

Abstract

This paper focuses on Indo-Iranian merchandise trade for a period of 30 years from1980-81 to 2009-10. The study is based on econometric modeling comprising 3 versions of the RWM model and alternative forms and specification of regression functions. RWM model(s) evaluates the stationary nature of time series data relating to GNP, Exports, Imports and total merchandise Indo-Iranian trade. Dickey-Fuller unit root test and Engle-Granger test of co-integration on residuals derived from the distributed lag model with partial adjustment hypothesis are used. Results of the distributed lag model with partial adjustment hypothesis emerge empirically and theoretically valid. Indo-Iranian trade is found to be affected both by the contemporary and lagged values of variables included in the model. But adjustment of actual to the desired change in specific trade variables is spread over several periods. Current values of merchandise trade are the slowest to adjust to its desired value, but adjustment of Indian exports to Iran is instantaneous while adjustment of imports requires 2-3 periods. These findings suggest that any contemporary political exigencies or international economic aberrations should not and will not affect the long-standing Indo-Iranian trade relations. Institutional arrangements and their strengths are stronger than barriers to allow aberrations to be effective.