An Application of Dynamic Generalized Gravity Model to Analyze the Effect of Political Instability on Trade Integration of Islamic Countries

In the current era, Islamic countries are facing numerous challenges in various fields especially in the economic area which most of them are originated from political issues. One example is trade integration between these countries that it is not sustainable in spite of the numerous similarities between them. The paper analyzes the role of political instability on trade integration of Muslim countries through applying a dynamic generalized gravity model as well as using chosen data of 16 Asian Muslim countries, including Iran during 2001- 2015. Findings which have been obtained through estimating dynamic generalized gravity model as well as panel reveal that some factors such as GDP, population, economic structure similarity and common language between countries have positive effect but geographical distance has negative impact on trade integration of the chosen countries. The coefficient of political instability on dynamic gravity model was estimated negative which shows that increasing political instability has weakened the trade integration of Muslim countries during the mentioned period. Regarding its considerable significance of political stability on trade integration, it is recommended that Muslim countries as well as OIC to take appropriate measures to eliminate political instability in these countries in order to facilitate the preconditions of trade integration improvement.