Abstract:
In the present study, the effect of concluding and executing monetary treaties as well as
membership of regional economic cooperation organizations (as a potential for using
regional currency) on mutual exports between Iran and its 50 major trading partners
during the period of 2000 to 2016 is investigated. The Generalized Commercial Gravity
Model and Ordinary Least Square (OLS) regression of panel data with fixed effects is
used. Countries' exports to each other is considered as dependent variable, and economic
weight (log ratio of countries’ GDP based on the purchasing power parity to each other),
geographic distance between countries, real effective exchange rate and the degree of
openness of the economy are independent explanatory variables. In addition, monetary
treaties and the membership of the countries in the Asian Clearing Union, in the
Economic Cooperation Organization (ECO) and in the Organization of Islamic
Cooperation (OIC) are considered as dummy variables. The results show a positive and
significant relationship between monetary treaties and the volume of exports of countries
to each other. Also, the coefficients of dummy variables are significant and negative,
indicating the lack of potential for the use of regional common currency among 51
countries over the considered period.
Machine summary:
Using the generalized gravity model, the variables affecting exports, including the gravity, repulsive variables of trade relations including the size of the economy, the distance, and the dummy variables of the monetary treaty and the membership in the Asian Clearing Union, ECO and OIC are measured indicating the degree of monetary convergence.
In addition to trade gravity and trade repulsion, variables including the size of the economy, the geographic distance, the effect of monetary treaties and the membership of the countries in the economic cooperative organizations as the potential for monetary union formation is also used.
Also, the correlation between the dummy variables of membership in the Asian Clearing Union (including Iran, Sri Lanka, India and Pakistan) and in OIC (including Uzbekistan, Afghanistan, UAE, Indonesia, Iran, Azerbaijan, Pakistan, Turkmenistan, Turkey, Syria, Iraq, Saudi Arabia, Oman, Kuwait, Malaysia and Morocco) as the potential of using common currency and creating a monetary union, with the natural log of the ratio of GDP based on the purchasing power parity of countries to each other is 0.
Also, economic and monetary convergence among countries under study, which is a member of the Asian Clearing Union, ECO and OIC, can be created by designing a foreign exchange and trade settlement system based on a common currency.
The Study of the Effect of the Formation of a Monetary Union on Trade between OIC Member Countries - Using the Optimal Currency Agreement Theory (OCA) and the Generalized Gravity Model.