Intra OIC-Region Trade: Application of Gravity Model

Abstract

Purpose: This study analyses the international trade among members of the Organisation of Islamic Cooperation (OIC) and documents the significant contributing factors. Methodology: Our sample includes 49 OIC-members (located from Southeast Asia to South America). The extended gravity model of international trade is applied to identify the determinants of intra-OIC region trade on the recent five years data (2014-18), at the time research conducted. Exports are used as proxy for the international trade between a pair of trading partners. Findings: Evidence supports the application of the basic gravity model in explaining trade variations within the OIC region. GDP contributes positively while distancing negatively. Common language contributes positively to trade flows. Shared borders and Inflation (importer and exporter) turned insignificant. Trade volume among OIC member countries is less than potential. Recommendations: OIC economies need to focus on growth through the production of value-added commodities-leading to an increase in international trade. Furthermore, surplus capital within the region may be shifted to economies with scarce capital. Significance: To the best of author’s knowledge, this is the only effort to present a comprehensive analysis of international trade within the OIC region through the application of the gravity model in recent years.