INTEGRATION OF BILATERAL TRADE BETWEEN TURKEY AND IRAN: AN APPLICATION OF NONLINEAR GRAVITY MODEL

Turkey's role as a world trade member has raised in recent years, especially as the nation is capitalizing on its geopolitical location. Given the significant trade volume and established relations between Turkey and Iran, their economic and trade relations should be given due consideration and steps ought to be taken to additionally improve these relations. The role of distance as border effects between economic partners has been made challengeable considerations in gravity model for business analysts and economist and lead to various theoretical perspectives for estimating and modeling of it. In addition, the need of non-linear approach for gravity model estimation has been impeccably concurred. The contribution of this study is the estimation of border effects by utilizing Poisson – Pseudo Maximum Likelihood (PPML). Thus, this research attempts to assess border effects on bilateral trade among Turkey and Iran using nonlinear gravity model. The results demonstrate that distance variable as intermediary for border effects on economic relations among Turkey and Iran has 0.28 and 0.94 in generalized least square (GLS) and PPML techniques respectively which it is moderately higher than other variables. As a strategy suggestion, the role of distance and utilizing railway transportations to reduce its effect, should be considered.