The effect of exchange rate fluctuations on bilateral trade: the case study of Iran and China

Since China has been Iran's most important trading partner in recent years, the present study has attempted to investigate the effect of bilateral real exchange rate fluctuations on the trade relationship between Iran and China during the period 1992-2017. To investigate this relationship, the business data in the export and import sectors were divided into 15 major commodity segments, and the autoregressive distributed lag (ARDL) pattern was used for the analysis. The results show that, in the long run, exchange rate fluctuations did not affect Iran's exports to China in the commodity groups that make up a major export share (chemicals and minerals), but in the commodity groups that had less share (stone and glass and ...) of exports have had a negative impact. In the long-term import sector, exchange rate fluctuations have increased Iran's imports into commodity groups, which make up a major share (machine and electric) of China's exports to Iran. in the short-term effects of exchange rate fluctuations, the results show an increase in imported commodity groups and a decrease in most export commodity groups. As a result, exchange rate fluctuations in both the short and long run do not provide Iran with an advantage in trading with China.