The Impact of Trade Liberalization on Total Factor Productivity in Group of Islamic Countries

Trade and trade policies can have a major impact on economic productivity. In fact trade freedom policies tend to improve economic efficiency and bring about a better allocation of resources through enhanced competition for the economy as a whole. In this study the role of trade liberalization in improving total factor productivity has been studied. The hypothesis tested is that trade liberalization has a positive impact on productivity. The countries studied to test the hypothesis are a group of Islamic countries which are members of the Organization of Islamic Conference (OIC). The data covers the period between 1985 and 2002. We used the ratio of exports plus imports to GDP for each country as an index for trade liberalization. The model used in the study is based on the work done by Miller and Apadiya using a panel data approach. The results indicated that trade liberalization among the selected Islamic countries has had a major impact on the total factor productivity (TFP). Other than economic freedom، variables such as inflation، human capital and price deviations from PPP also showed to have a significant impact on the total factor productivity of the countries during the period of the study.