Determinants of Halal trade flows: the influence of Halal certification, Halal presence and Muslim population on Malaysia’s Halal exports / Anis Mardiana Abdullah

The Malaysian government has identified the Halal Industry as a catalyst of growth; however, the performance of the Halal industry, in particular its trade sector, is not on par with its targeted growth. Aside from the under performance of Halal exports, the Halal Development Corporation’s (HDC’s) target markets for Halal exports are clearly different from the top 10 Malaysian Halal export destinations, indicating that current target markets differ from the trend and need to be reviewed. Therefore, the main aim of this study was to investigate the determinants of Halal trade flows, particularly the influence of Halal certification and the Muslim population on Malaysia’s Halal exports. The second aim was to examine the influence of the same determinants at the categorical level with the assumption that they would be almost identical. This study utilized Halal export data from the Department of Statistics Malaysia (DOSM) for the period between 2010 and 2018 to conduct empirical analysis based on the structural gravity model framework. The structural gravity model requires the inclusion of multilateral trade resistance (MTR) variables in the equation to address the border puzzle phenomenon. To account for MTR, this study followed the latest trend in the structural gravity model by using fixed effect variables as well as transnational trade data to cater to unilateral time-variant variables. The inclusion of these variables solved the statistical debate on the col linearity of unilateral variables and provided theoretically consistent and efficient estimation results. This study is believed to be the first to empirically measure the influence of Halal certification, domestic Halal certification, and Muslim demand on Halal export flows using actual Halal trade data. Another novelty of this study is its proposed general definition of the Halal industry and its categorization of Halal export products by their SITC code. Given that the definition of the Halal industry is not readily available, this study proposed that the Halal industry can be defined as an industry that produces and offers good quality products and services in accordance with Syari’ah law. This definition does not change the structure or concept of the Halal industry, especially in identifying Halal products and services. Apart from the filling knowledge gaps, this study offers information and insights from the managerial perspective. The estimation of the full sample model indicated that the size of Malaysia’s GDP has a negative influence on Halal trade flow while importer size has a positive influence on flows. Results of importers’ percapita income further showed that Halal products are not luxury products. Next, distance and common borders have a negative influence on Halal trade flows, while both the Halal certificate and the Muslim population enact a positive influence on Halal trade flows. As for Halal categories, the six Halal categories demonstrated different estimated results. Halal palm oil derivatives (POD) exhibited the most similar result to the aggregate full sample estimate. The findings of this study carry implications for policy makers in designing better strategies to boost Halal export flows. Streamlining targeted markets for Halal exports is the first recommendation. Greater focus should be given to China and India as primary targets because of the proximity and purchasing power of both countries. Emphasizing palm oil as the core of the Halal industry is another policy recommendation of this study. The study’s findings show that the palm oil industry comprises a significant share of Halal exports via its subsectors of Halal POD, Halal ingredients, and Halal food and beverage. Malaysia’s position among the world’s top palm oil exporters will further boost Halal Malaysian exports that are built around the palm oil industry.