American Journal of Applied Sciences

Trade Linkages between Malaysia and the OIC Member Countries: Empirical Evidence Based on Gravity Model

Irwan Shah Zainal Abidin, Mohd Dan Jantan, Nurulhuda Mohd Satar and Muhammad Haseeb

DOI : 10.3844/ajassp.2014.1938.1944

American Journal of Applied Sciences

Volume 11, Issue 11

Pages 1938-1944

Abstract

This study examines trade relations between Malaysia and 55 of the Organization of Islamic Cooperation (OIC) member countries for the period of 1995 to 2012. Applying the Trade Gravity Model (TGM), the study will isolate factors that determine Malaysia-OIC trade measured by Malaysian exports to OIC member countries. Since the series are integrated of order 1 and appear to be cointegrated, we utilize the Fully Modified OLS (FMOLS) to estimate the determinants of trade between Malaysia and OIC countries. The FMOLS estimation reported that per capita GDP, Foreign Direct Investement (FDI) differential and real exchange rate of OIC member countries are supporting the expansion of the exports whereas any increase in trade per GDP ratio, corruption and real exchange rate of Malaysia creates additional impediments to the trade relation. The findings suggest that economic strengthening as the basis for increase in trade between Malaysia and OIC members. Investment appears to be complementary to the trading relations in the Malaysia-OIC case. The social capital also plays role in supporting the traade.

Copyright

© 2014 Irwan Shah Zainal Abidin, Mohd Dan Jantan, Nurulhuda Mohd Satar and Muhammad Haseeb. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.