Foreign direct investment and Iran's bilateral intra-industry trade with China and the Russia

Abstract

This paper analyzes the dynamic changes of Iran's intra-industry trade with its major trading partners, China and the Russia, from 2001 to 2013. The estimated intra-industry indexes demonstrate that, while shares of Iran's intra-industry trade with both China and Russia rose substantially, its intra-industry trade with China increased of the overall trade in 2013, considerably larger than 15% with the Russia. The Iran-China intra-industry trade concentrated in electrical and machinery sectors and accounted for 52 and 55% of the total trade in those sectors, respectively.. In addition, the paper investigates to what extent that foreign direct investment from those two countries promoted their bilateral intra-industry trade with Iran. The empirical results show that, China direct investment performed a significant role in enhancing the bilateral intra-industry trade. However, it finds evidence that the Russia direct investment contributed to the growth of the Iran-Russia intra-industry trade.