| dc.description.abstract | Background – The issue of trade integration has been taking place since every nation agrees to integrate into the global system. In response to such condition, several macroeconomic policies have been carried out to generate maximum gains from this international integration. Lately, the issue emerges of whether exports or imports in developed and developing countries have not been in violation of their international budget constraints. Another issue is whether the existence of trade imbalances is considered as a short-run phenomenon or whether it would remain sustainable in the long run. Similarly, this has implied that the existence of a well-functioning economy due to deficits incurred is considered as temporary phenomena balanced by future surpluses. Subsequently, the stability of trade balance is heavily influenced by the existing stability of exchange rate. Economic theory suggests that misalignment in the real exchange rates of nations as well as their departure from long-run equilibrium rates,negatively affects
economic growth, and subsequently transmitted to the decrease in trade volume. Hence, exchange rate stability is a pre-requisite variable triggering the engine of growth in exports and imports matters.
Supposed the trade balance in OIC member countries are similar, in the sense that originally they are trading with the same items and patterns of goods and services, it implies to expose a probability such as asymmetric shock which
emerged across member countries. The asymmetric shocks exhibit the important
factor to further analyze within selected OIC member countries since an expected disturbance might affect one country’s national output differently and therefore might threat the stability of exports and imports toward some selected
OIC member countries.
Problem – The paper attempts to focus on three main issues to empirically
investigate the impacts of exchange rate fluctuation unto imports and exports performance in selected OIC member countries. In that regards, this study
elaborates three research questions, namely (1) are the imports and exports in the selected OIC member countries co-integrated?, (2) does exchange rate fluctuation
have a significant impact toward exports and import performance in the selected OIC member countries?, (3) does the existence of shocks on exports and imports variables generate possibilities of crisis in the selected OIC member countries?
Design/methodology/approach – This study employs several econometric approaches to estimate precisely any possible relationship among observed variables such as import, export, and nominal exchange rate variables, spanning
from the period of 1970:M1-2009:M4 from selected five OIC member nations. Vector Error Correction Model (VECM) is employed to address the relationship among the observed variables and access some dynamic responses to trade
performances as shown by exchange rate shocks.
Findings – The findings show the existence of co-integrating relationship between exports and imports in selected OIC member nations. It implies that OIC countries would be sustainable in the long run and are not in violation of their international budget constraints. The identification of asymmetric shocks indicates OIC member nations are not having the same patterns as trading partners. Nevertheless, OIC countries have symmetric shocks so that trade integration can be established and can reduce trade cost transaction and maximize the benefit of being trading partners. Lastly, we find that exchange rate fluctuation is not heavily affected by the volume of both imports and exports. Conversely, the performance of exports and imports are not hinged largely on exchange rate fluctuations. The endurance from exchange rate shocks indicate that selected OIC member nations are successful in maintaining the economy to work properly and manage the potential vulnerability of exchange rate fluctuation.
Conclusion – This paper ends up with some policy recommendations, including
that the selected OIC member nations can exhibit and foster a greater economic cooperation, particularly in trade policy. It also recommends strengthening the level of economic development among Islamic countries, and strengthening the
economic structures which ultimately can share benefits and avoid trade imbalances. Given that trade integration has become an important issue, each of the OIC countries should be preparing to enhance their technological capabilities and productive capacities. | en_US |
