This article has considered the volume and direction of Iran’s trade using the gravity model. The major issue in this analysis is to explore why Iran over or under-traded with the 76 countries relative to the predicted trade flows of the model. The study attempts to explore the reasons from the respect of both the model itself and Iran’s trade structure. This is done by analysing the performance, like most of the developing countries, lying in natural-resource-based manufactured goods (i.e., hydrocarbons and agricultural products), and labour-intensive products (i.e. textile fibre and carpet). Part of these products (primarily agricultural) face quantitive restrictions imposed by the industrial countries, such as EU countries. What adds to the problem is the existing competition with similar exported products (i.e., textile and carpet) between Iran and other developing countries. However, the advantage of a relatively adaptable labour force gives Iran an opportunity to exploit her labour-intensive products. Having this advantage in this domain does not remove the necessity for a greater effort in improving the quality of the labour force so as to enhance the quantity and quality of the products.
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