The Impact of Scale Economies and Product Variety on Forieng Trade and the Study of the Causality Relationship Between Them: The Case Study of Iran’s Manufacturing Industries

In this research, the impact of scale economies and product variety on the foreign trade of Iranchr('39')s manufacturing industries with its major trading partners is examined. While using the data of Iranchr('39')s manufacturing sector at two digit level, a translog production function was used to evaluate the economies of scale in this sector. The data covered the period between 2001 to 2015. Moreover, Feenstra variety index is exploited to measure product variety in the export products of Iranchr('39')s industrial sector. While using iterative seemingly unrelated method to estimate  the economies of scale, a dynamic panel data via GMM method was used to estimate the standarad trade model. The results show that economies of scale and product variety have positive impact on the foreign trade of Iranchr('39')s manufacturing industries. To study the causality relationship between the variables of economies of scale and product variety with foreign trade, the Hsiao’s Granger causality test is utilized. The Findings of this research confirm the existence of a two-way causality relationship between economies of scale and product variety with foreign trade of Iranchr('39')s manufacturing industries.