Gravity Model: An Application to Trade between Iran and Regional Blocs

In this paper we revisited the recent contribution study which examines the determinants of bilateral trade between Iran and Europe Union, ECO, GCC and ASEAN countries in the period 1995-2009, using a panel data approach. The findings indicate that Iran trade flows follow the Linder hypothesis, while the bilateral trade is associated with Heckscher-Ohlin- Samuelson theorem. Results show that geographical distance is negative and significant; trade will increase if the transportation costs decreases. We also introduce the economic dimension and income per-capita; these proxies confirm the positive effects on bilateral trade. Our results also confirm the hypothesis that foreign direct investment (FDI) is positively correlated with the trade.