Investigating the Determinants of Export Diversification in Iran Based on the Bayesian Model Averaging (BMA) Approach

Abstract

The present study employs the Bayesian Model Averaging (BMA) method to examine the macroeconomic determinants influencing export diversification in Iran. The findings indicate that per capita income and the degree of trade openness, with posterior inclusion probabilities exceeding 0.95, act as the strongest positive predictors, confirming the pivotal role of domestic productive capacity and integration into global trade in fostering export diversification. In contrast, the inflation rate, as an indicator of macroeconomic instability, demonstrates a statistically significant inhibitory effect, with a negative coefficient and a probability of 0.89. Financial development, by facilitating capital provision and risk management, exhibits a supportive and enabling effect. A key finding is the negative impact of the real effective exchange rate, which may reflect the phenomenon of “Dutch disease” or the adverse effects of exchange rate volatility on investment in non-traditional sectors. Although human capital and foreign direct investment inflows show positive effects, their influence is comparatively weaker, possibly indicating the existence of a skills gap or the concentration of foreign investment in sectors with limited linkages. Institutional and structural variables (such as fixed capital formation, income inequality, institutional quality, infrastructure, and resource rents) play a marginal role in the final model, which may suggest their indirect and long-term effects. Overall, the results underscore the necessity of an integrated policy approach comprising macroeconomic stability, targeted trade integration, financial deepening, and the enhancement of effective human capital to achieve a diversified and resilient export structure.