The Impact of Macroeconomic Variables on Iran’s Trade with Economic Cooperation Organization Countries: An Extended Gravity Model

Abstract

This article aims to examine the effects of macroeconomic variables on Iran’s bilateral trade with member countries of the Economic Cooperation Organization (ECO) over the period 2007–2023, utilizing an extended gravity model. In the context of evolving global trade dynamics and escalating international sanctions, the research seeks to assess the influence of key factors—including GDP, inflation differentials, exchange rate volatility, digital trade and financial sanctions—on Iran–ECO trade flows. Using panel data and a fixed-effects regression approach, the model incorporates both traditional gravity variables (economic size, distance) and contemporary trade determinants (internet penetration, sanctions). The results indicate that GDP growth and improvements in digital infrastructure significantly promote trade, whereas inflation disparities and exchange rate instability hinder it. Interestingly, financial sanctions exhibit a positive impact, suggesting a reorientation of Iran’s trade towards ECO countries. The findings imply that deeper regional integration, expanded digital trade capacity and the use of alternative trade mechanisms can help buffer external shocks and strengthen trade resilience.