Welfare Effects of the Trade Agreement between Iran and MENA Countries with Emphasis on Transportation: A Global Simulation Approach (GSIM)

Document Type : Original Article

Authors

1 shiraz university

2 Shiraz University

10.48308/jem.2026.242987.2035

Abstract

Fostering regional cooperation amidst sanctions serves as a strategic mechanism to mitigate economic vulnerability. Employing a generalized Global Simulation Model (GSIM) that incorporates transportation costs alongside tariff variables, this study assesses the welfare effects of a potential trade agreement between Iran and the MENA region, with a specific focus on trade creation and diversion. An analysis of 669 selected commodities under a member no-loss constraint reveals that under a full tariff elimination scenario, Iran's net welfare increases by approximately $300 million, and the trade creation-to-diversion ratio reaches 2.82, indicating the predominance of benefits. Furthermore, findings indicate that a 10–20% reduction in transportation costs yields a more significant impact on welfare enhancement than tariff elimination alone. Optimization results demonstrate that Pareto stability is achievable through the limited exclusion of specific commodities from the agreement. Consequently, while participation in this agreement holds strong economic justification, a phased implementation and infrastructure development are essential to address the decline in customs revenues.

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