Determinants of Iran’s Bilateral Intra-industry Trade in Pharmaceutical Industry

Among non-oil and in trade arena, drug has always been strategic importance and most
government especially industrialized countries pay special attention to its production and
trade issues. Thus, having a comprehensive view from economic perspective to this
section is essential for suggesting intervention. This was a descriptive-analytical and
panel study. In this study, gravity model is used to estimate Iran’s bilateral intra-industry
trade in pharmaceutical products in the 2001-2012 periods. To illustrate the extent of
pharmaceutical’s intra-industry trade between Iran and its major trading partners, the
explanatory variables of market size, income, factor endowments, distance, cultural
contributions, and similarities and also special trade arrangements have been applied.
Analysis of factors affecting Iran’s bilateral intra-industry trade in pharmaceutical
industry showed that the average GDP and cultural similarities had a significant positiveimpact on Iran’s bilateral IIT, while the difference in GDP has a negative and significant
effect. Coefficients obtained for the geographical distance and the average ratio of total
capital to the labor force is not consistent with theoretical expectations. Special trade
arrangements did not have significant impact on the extent of bilateral intra-industry trade
between Iran and its trading partners. The knowledge of the intra-industry trade between
Iran and its trade partners make integration between the countries. Factors affecting this
type of trade pattern underlie its development in trade relationship. Therefore, the
findings of this study would be useful in helping to develop and implement policies for
the expansion of the pharmaceutical trade