The Role of Preferential Trade Agreement (Pta) Between Iran and Malaysia in Thelr Intra Industry Trade (Iit)

Early trade liberalization in the east asian newly industrialized econormes took place against a backdrop of rapid growth. later, following the instability of the international economy in the late 1970s/early 1980s, several developing countries adopted majoreconomic reforms including trade liberalization somehow in theform of preferential trade agreements. increasing openness andmutual trade relations are likely to be associated, not only withincreasingly cois'etitive product markets but also with intraindustry trade (ill'), that is, the simultaneous exports and imports ofproducts within the same industry. intra industry specialization hasattracted considerable attention in recent years, and an increasingnumber of researchers have developed econometric models toexplain intra industry trade. this paper has two objectives. first itstrives to calculate the extent of bilateral intra industry trade of iranand malaysia, using grubel & lloyd index at the 6-digit level ofharmonized tariff schedule over the years 1997-2001. secondly,some of the various sources of intra industry trade are combined ina panel gravity method to explore the impact of implementing anypta between two countries on the bilateral iran-malaysia traderelations. the results of our econometric study support thehypotheses put forward in literature as far as the commoncharacteristics of the countries in question are concerned. thus, theregression coefficients of the average gross national income, lindervariable, average country size, inequality in country size, distance,and preferential trade aweement all have the expected sign and arestatistically significant in 10 percent level in the fixed effect model.the findings support our hypothesis, showing that preferential tradeagreement plays a significant role in the rapid increase of litbetween the two countries.