Trade costs and intra-OIC trade: What are the linkages?

There is direct evidence that both trade costs between oic and developed countries as well as among oic countries are falling and their shares in total exports of oic countries are expanding. in turn,there was an upward trend in trade costs between oic and non-oic developing countries and a fall in their share in total exports of oic countries. this paper argues that much of the changes in the direction of exports of oic countries can be attributed to the changes in trade costs. in this framework,this paper analyzes the role of trade costs (in aggregate as well as its various components) in determining the direction of exports from oic countries. the estimation results show that 1% reduction in trade costs can increase world exports by 3.8%,but it can increase exports from oic countries up to 4.3%. when trade partners of oic countries are considered separately,1% fall in trade costs increases exports from oic countries to developed countries by 4.2% and increases intra-oic exports by 3.9%. however,1% rise in trade costs leads to 4.5% fall in exports to these countries. these findings support the view that the current trend in trade costs is one of the major factors shaping the direction of exports from oic countries. these findings are robust to alternative estimators of the heckman selection model and the poisson pseudo-maximum likelihood that are used to deal with the concerns over sample selection bias and heterogeneity. © 2014 statistical economic and social research. all rights reserved.