Why Is Iran's Share in Global Trade Low? A Case Study of Iran with an Emphasis on the Role of Institutional Quality

Khorrami Moghadam, Azadeh; Afghah, Morteza; Farazmand, Hassan; Alipour, Hamidreza

doi:10.48308/jep.2026.239831.1223

Why Is Iran's Share in Global Trade Low? A Case Study of Iran with an Emphasis on the Role of Institutional Quality

Articles in Press

Document Type : Original Article

Authors

¹ Ph. D Candidate in Economics, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

² Associate Professor, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran

³ Professor, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

⁴ Assistant Professor, Faculty of Economics and Management, Azad University of Rasht, Rasht, Iran.

10.48308/jep.2026.239831.1223

Abstract

This study aims to analyze the factors underlying Iran’s limited share in global trade, with particular emphasis on the role of institutional quality. According to statistics, Iran’s share of world trade has fallen to less than 0.5 percent. Employing a gravity model of trade and bilateral trade data with 80 partner countries over the period 1996–2020, the impact of institutional quality on Iran’s trade volume was examined. The model was estimated using the Poisson Pseudo Maximum Likelihood (PPML) method, which is suitable for trade data containing zero values. Contrary to theoretical expectations, which view institutional quality as a driver of trade expansion, the findings revealed that Iran’s institutional quality had a significant negative effect on the country’s trade volume. The analysis suggests that this unexpected outcome reflects Iran’s specific circumstances rather than the irrelevance of institutions. International sanctions and external pressures have steered Iran toward partners less sensitive to institutional indicators, thereby reducing trade with industrialized countries with strong institutions (such as Germany and Japan) and increasing trade with countries such as China and Turkey. In addition, chronic inflation and constraints imposed by informal institutions (e.g., ideological orientations in foreign policy) have also negatively affected foreign trade. Ultimately, the results highlight the inefficiency of Iran’s institutional framework as one of the main barriers to trade development. Accordingly, improving the quality of both formal and informal institutions, along with moving toward the production of goods with higher economic complexity, is essential for enhancing Iran’s position in global trade.

Keywords

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