The OIC's Intra-Bloc and Extra-Bloc Trade: How Effective are the FTAs?

Abstract

The present study evaluates the role of Free Trade Agreements (FTAs) in facilitating trade for the Organization of Islamic Cooperation (OIC) member countries. We used the structural gravity model and the Poisson pseudo-maximum likelihood estimator to examine annual bilateral trade from 2000 to 2019. We find that FTAs have a positive impact, which is more pronounced in the case of the intra-OIC trade. Furthermore, the findings show that the quality of governance in the source country influences the adjustment of the exporting process in response to the entry of an FTA. The majority of OIC countries currently have poor governance. Therefore, improving the governance conditions would encourage trade, particularly for the extra-bloc exports.