Measuring the Export Efficiency of Iran's Agricultural Products in ECO Countries

Document Type : Research Paper

Authors

• Sara Baghbanhaghighi ¹
• Saeed Yazdani ²
• Milad Aminizadeh ³

¹ Department of agricultural economics, Extension and education science and research branch, Islamic Azad university of Tehran, Tehran, Iran

² Department of agricultural economics, Department of agricultural economics and development, University of Tehran, Karaj, Iran

³ Department of agricultural economics, Ferdowsi university of Mashhad, Mashhad, Iran.

Abstract

Keywords

• Agricultural export
• Iran
• Export efficiency
• Stochastic frontier gravity model

Extended Abstract

Introduction

International trade plays an important role in economic development of all countries, especially developing countries. The analysis of export efficiency as the performance of the exporting country in the destination market can help policymakers to choose useful marketing strategies.

Trade agreements are generally effective in increasing trade by reducing trade costs and improving the safety of contracts. One of these trade agreements is the Economic Cooperation Organization (ECO) that can help to reduce trade barriers and hence more exports. There is no empirical studies about Iran's agriculture export efficiency in the market of ECO countries. Therefore, the purpose of this study is to determine the export efficiency of Iran and to identify the export capacity of ECO markets for Iran's agricultural sector.

Methodology and data

In this study, the stochastic frontier gravity model (SFGM) is used for assessing the Iran’s agriculture export efficiency in ECO countries. This model is a combination of gravity model and stochastic frontier production function model.  The gravity model is a well-known tool by international trade economists explains trade flows between two trading countries depend on economic size and geographical distance. For the estimation of model, the Stochastic Frontier Gravity Model is used as follows:

Where, Export_ijt   is Iran’s agricultural export to ECO countries in year t. GDP_jt   represents gross domestic product of importing countries. Distance_ij   represents the bilateral geographical distance between the capital of Iran and the ECO country. DPCGDP_jt represents GDP per capita difference between Iran and ECO countries as a proxy of economic difference. The dummy variables of Border_ij, Sanction_jt and Crisis_jt represent common border, economic sanction and food crisis. The analysis is based on balanced panel data that covered 9 ECO countries for 2001-2018.

Results and suggestion

The results of LLC and Fisher panel unit root test clearly show that all the variables are stationary. The coefficient of importers’ GDP carries the expected positive sign on its coefficient but is statistically insignificant at 10 percent level. The coefficient of the variable distance is negative but statistically insignificant at 10 percent level. This means that geographical distance does not play an impeding role in agriculture exports from Iran to ECO countries.  The coefficient of the variable GDP per capita difference as a proxy of economic distance is positive and statistically significant at 10 percent level. This means that agriculture exports from Iran to ECO countries with different economic structure is higher compared to importing countries with similar economic structure. Based on the results, the coefficient of the dummy variable for common border is positive and highly statistically significant at 1 percent level. This indicates that common border between Iran and ECO countries led to lower transaction cost and same food-style which had increasing effect on Iran’s agriculture exports. The coefficient of dummy variable for economic sanctions is positive and highly statistically significant at 1 percent level, showing that economic sanction led to increasing supply from Iran to ECO countries. The coefficient of dummy variable for food crisis is positive and statistically insignificant at 10 percent level, meaning that food crisis does not play a reducing role in agriculture exports to ECO countries.

According to the export efficiency results, none of the ECO countries are showing 100% efficiency. Despite the increase in exports to ECO countries, the efficiency of Iran's agricultural exports in the target market has only approximately 25%. This means there is a lot of potential to increase exports to ECO countries. Therefore, due to the uncertain political situation of Iran, ECO countries with cultural and religious similarities can play an important role in increasing Iran’s agriculture exports given the cultural and religious similarities.