Assessing the welfare effects of Iran's accession in BRICS: A global simulation approach (GSIM)

Sayareh, Morteza; Dehghan Shabani, Zahra; Eslamloueyan, Karim; Kiani Moghaddam, Mansour

doi:10.22059/jcountst.2025.398695.1319

Assessing the welfare effects of Iran's accession in BRICS: A global simulation approach (GSIM)

Document Type : Original

Authors

¹ Department of Economics, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran.

² Department of Business Administration, Faculty of Management and Humanities, Chabahar Maritime University, Chabahar, Iran.

10.22059/jcountst.2025.398695.1319

Abstract

In recent decades, the global economic and geopolitical landscape has undergone profound transformations, marked by the rise of emerging powers and a shift toward a multipolar world order. Within this context, the accession of the Islamic Republic of Iran to the BRICS group in January 2024 signifies a deepening of cooperation among emerging economies and presents a strategic opportunity to enhance economic collaboration, gain access to larger markets, facilitate trade in national currencies, and mitigate the impact of sanctions. While most previous studies have been limited to broad analyses, this research aims to fill a critical gap by examining the welfare and trade effects of Iran's membership at the commodity level. Addressing the lack of detailed studies on the trade implications of Iran’s accession to BRICS, this research employs the Global Simulation Model (GSIM), a partial equilibrium framework, to evaluate the impacts of four tariff reduction scenarios. The analysis is based on 860 HS4-level product codes with revealed comparative advantage, using data extracted from UN Comtrade and MacMap and processed through Python. The results indicate that full trade liberalization could generate $13.1 billion in net welfare gains for Iran. A trade creation to trade diversion ratio of 2.71 highlights substantial benefits. Sectors such as mining, plastics, and machinery experience the highest gains, whereas plant-based products (e.g., corn) suffer losses. Formulating a targeted trade strategy—by excluding loss-making products and optimizing tariff reduction levels—can increase Iran’s net welfare by up to 27.2%. Active participation in BRICS, through reorienting trade flows from limited traditional partners to more diverse intra-group markets, can significantly enhance the country’s economic resilience.

Keywords

Main Subjects

Economics

حوزة موضوعی: ایران و کشورهای عضو بریکس

Scope: Iran & BRICS

References

Akiş E. (2015). “Innovation and Competitive power”. Procedia- Social and Behavioral Sciences. 195: 1311-1320. https://doi.org/10.1016/j.sbspro.2015.06.304.

Amogne HS, Hagiwara T. (2021). “Impact of alternative regional trade arrangements on the Ethiopian economy”. Economic Structures. 10(2). https://doi.org/10.1186/s40008-020-00232-2.

Baier SL, Bergstrand JH. (2007). “Do free trade agreements actually increase members' international trade?”. Journal of International Economics. 71(1): 72-95. https://doi.org/10.1016/j.jinteco.2006.02.005.

Braymen C, Chang YM, Luo Z. (2016). “Tax policies, regional trade agreements and foreign direct investment: A welfare analysis”. Pacific Economic Review. 21(2): 123-150. https://doi.org/10.1111/1468-0106.12077.

Busse M, Groning S. (2012). “Assessing the impact of trade liberalization: The case of Jordan”. Journal of Economic Integration. 27: 466-486. https://econpapers.repec.org/scripts/redir.pf?u=http%3A%2F%2Fsejong.metapress.com%2F;h=repec:ris:integr:0581.

Carrere C. (2006). “Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model”. European Economic Review. 50(2): 223-247. https://doi.org/10.1016/j.euroecorev.2004.06.001.

Cui L, Song M, Zhu L. (2019). “Economic evaluation of the trilateral FTA among China, Japan, and South Korea with big data analytics”. Computers & Industrial Engineering. 128: 1040-1051. https://doi.org/10.1016/j.cie.2018.04.029.

Darby MR, Zucker LG. (2006). “Innovation, Competition and Welfare-Enhancing Monopoly”. NBER Worhing Paper. No. 12094. https://www.nber.org/system/files/working_papers/w12094/w12094.pdf.

Darma WS, Hastiadi FF. (2019). “Trade creation and trade diversion effects of the ASEAN-China FTA, ASEAN-Korea FTA, and ASEAN-India FTA implementation on the export of Indonesia’s food and beverages industry products”. Globalization Productivity and Production Networks in ASEAN: Enhancing Regional Trade and Investment. 147-168.

Elahi N, Masoumzadeh E, Kiaalhosseini SZ, Arabi SH. (2020). “Regionalism and its economic effects on Iran in a Computable General Equilibrium (CGE) model: A case study of the Eurasian Economic Union (EAEU)”. 50(2): 29-46. https://doi.org/10.22108/ies.2020.116971.1065.

Fall F, Gasealahwe B. (2017). “Deepening regional integration within the Southern African development community”. OECD Economics Department Working Paper. No 1450. https://dx.doi.org/10.1787/a840ffba-en.

Farzi N, Salmani Bishak MR, Nejati M. (2021). “Investigating the impact of the preferential trade agreement between Iran and Turkey on the priduction of different economic sectors in Iran: Based dynamic GTAP”. Quarterly Journal of Applied Theories of Economics. 8(2): 129-152. https://doi.org/10.22034/ecoj.2021.44481.2830. [in Persian]

Foster N. (2012). “Preferential trade agreements and the margins of imports”. Open Economies Review. 23(5): 869-889. 10.1007/s11079-011-9213-5.

Francois JF, Hall HK. (2002). “Global simulation analysis of industry-level trade policy”. Technical Paper. https://wits.worldbank.org/data/public/GSIMMethodology.pdf.

Fratianni M, Oh CH. (2009). “Expanding RTAs, trade flows, and the multinational enterprise”. Journal of International Business Studies. 40(7): 1206-1227. http://dx.doi.org/10.2139/ssrn.1114607.

García EC, Navarro Pabsdorf M, Gómez Herrera E. (2013). “The gravity model analysis: An application on MERCOSUR trade flows”. Journal of Economic Policy Reform. 16(4): 336-348. http://dx.doi.org/10.1080/17487870.2013.846857.

Gashgari S. (2016). “The effects of free trade on domestic and infant industries”. International Journal of Scientific and Engineering Research. 7(3): 666-668. http://dx.doi.org/10.14299/ijser.2016.03.007.

Holzner M. (2004). “GSIM measurement of the costs of protection in Southeast Europe”. ECONSTOR. https://hdl.handle.net/10419/226093.

Ibrahim M. (2023). BRICS consolidation transforming global economic and development landscape”. IsDBI Blogs. https://doi.org/10.55780/Re24029.

Itakura K, Lee H. (2019). “Estimating the effects of the CPTPP and RCEP in a general equilibrium framework with global value chains”. Conference Paper. Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project. https://ideas.repec.org/p/ags/pugtwp/333031.html.

Kahouli B, Maktouf S. (2014). “The link between regional integration agreements, trade flows and economic crisis: A static and dynamic gravity model”. International Journal of Development Issues. 13(1): 35-58. http://dx.doi.org/10.1108/IJDI-11-2013-0082.

Khorana S, Kimbugwe K, Perdikis N. (2009). “Assessing the welfare effects of the East African Community Customs Union's transition arrangements on Uganda”. Journal of Economic Integration. 24(4): 685-708. https://www.jstor.org/stable/23001245.

Lee JW, Park I. (2005). “Free trade areas in East Asia: Discriminatory or non‐discriminatory?”. World Economy. 28(1): 21-48. https://doi.org/10.1111/j.1467-9701.2005.00673.x.

Lee SH, Kim CS. (2012). “A CGE analysis of the ASEAN+ 3 free trade agreement under different market structures”. Hitotsubashi Journal of Economics. 53:L 201-215. https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/25386/HJeco0530220100.pdf.

Magnus B, Ari K. (1997). “Regional integration and foreign direct investment”. In: National Bureau of Economic Research Cambridge. Mass., USA. https://www.nber.org/papers/w6019.

Mahmoodi A. (2017). “The impact of trade liberalization on the welfare of trade partners using the GTAP model (Case study: Iran)”. Economic Research (Sustainable Growth and Development). 14(1): 127-150. http://ecor.modares.ac.ir/article-18-10046-fa.html. [in Persian]

Manoj P, Anusree P. (2018). “The role of regional trade agreements: in the case of India”. Journal of Economic Integration. 33(3): 538-571. http://dx.doi.org/10.11130/jei.2018.33.3.538.

Mardiha S, Azarbaijani K, Tayebi SK, Jafary D. (2020). “Assessing the economic effects of Iran's membership in the Shanghai Cooperation Organization: An application of Global Simulation Model”. Journal of Economic Research. 55(1): 233-268. https://doi.org/10.22059/jte.2020.275972.1008118. [in Persian]

Medvedev D. (2012). “Beyond trade: The impact of preferential trade agreements on FDI inflows”. World Development. 40(1): 49-61. http://dx.doi.org/10.1016/j.worlddev.2011.04.036.

Métivier J, Bacchetta M, Bekkers E, Koopman R. (2023). “International trade cooperation's impact on the world economy”. Work Trade Organisation. Staff Working Paper ERSD-2023-02. https://www.wto.org/english/res_e/reser_e/ersd202302_e.pdf.

Mytelka LK. (2000). Competition, Innovation and Competitiveness in Developing Countries. OECD. https://www.oecd.org/content/dam/oecd/en/publications/reports/1999/08/competition-innovation-and-competitiveness-in-developing-countries_g1gh136d/9789264173323-en.pdf.

Nejati M, Bahmani M, Jalaei Esfandabadi A, Balaghi Inalo Y. (2020). “Analyzing welfare effects of trade liberalization using multi-regional computable general equilibrium model approach: The case of Iran and Eurasian Economic Union”. Economics and Modeling. 11(1): 153-179. https://doi.org/10.29252/jem.2020.100522. [in Persian]

Niyakan Lahiji N. (2012). Examining the Trade Effects of Iran's Accession to the Shanghai Pact (Using the Gravity Model). PhD thesis, Payame Noor University, Markazi Center. [in Persian]

Pfaffermayr M. (2020). “Trade creation and trade diversion of economic integration agreements revisited: A constrained panel pseudo-maximum likelihood approach”. Review of World Economics. 156(4): 985-1024. https://doi.org/10.1007/s10290-020-00389-9.

Saadat R, Abounoori E, Baky Haskouei M, Zarea HM. (2017). “The welfare effects of Iran's accession to WTO in a DCGE framework”. Journal of Trade Studies. 21(84): 131-168. [in Persian]

Sadeghi S. (2024). “Iranian view on BRICS and developments in international system: Examining the research approaches of Iranian scientific-research articles on international relations”. Countries Studies. 2(2): 221-248. https://doi.org/10.22059/jcountst.2024.369490.1086.

Shankar P. (2010). “Regional economic integration: Legal aspects”. Social Science Research Network. https://dx.doi.org/10.2139/ssrn.1663222.

Sheng Y, Tang HC, Xu X. (2014). “The impact of the ACFTA on ASEAN–PRC trade: Estimates based on an extended gravity model for component trade”. Applied Economics. 46(19): 2251-2263. https://doi.org/10.1080/00036846.2014.899676.

Soren P, Bernhard B, Glauben T. (2012). “An extended Viner Model: Trade creation, diversion & reduction”. ECONSTOR. https://www.econstor.eu/bitstream/10419/64609/1/726475513.pdf.

Tschaeni H, Engammare V. (2013b). “The relationship between trade and competition in free trade agreements: Developments since the 1990s and challenges”. In Herrmann C, Krajewski M, Terhechte JP (Eds.), European Yearbook of International Economic Law. (pp. 39-69). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-642-33917-2_3.

Ullah MS, Inaba K. (2011). “Impact of RTA and PTA on Bangladesh’s export: Application of a gravity model”. Journal of Industry Competition and Trade. 12(4): 445-460. http://dx.doi.org/10.1007/s10842-011-0116-3.

Venables T. (2001). “International trade: Economic integration”. In Smelser NJ, Baltes PB (eds.). International Encyclopedia of the Social and Behavioural Sciences. Pergamon Press (Oxford, England), Oxford: 7843-7848. http://eprints.lse.ac.uk/id/eprint/1888.

Viner J. (2014). The Customs Union Issue. Oxford University Press, USA.

World Bank. (2023). World Development Indicators. https://doi.org/10.1093/acprof:osobl/9780199756124.001.0001.

Zeroki Sh, Motameni M, Mollatabar Firoozjaei F, Hasanpour Varkolaei M. (2024). “Analysis of the effect of trade on economic well-being in Iran during the last half century”. Stable Economy Journal. 5(3): 107-136. https://doi.org/10.22111/sedj.2024.48922.1481. [in Persian]