The purpose of this paper is to investigate the link between trade diversion risk and new Halal market exploration.
This paper analyzes the Halal trade flows for Malaysia’s top 11 halal food/food-related commodities from 1967 to 2018 by relying on co-integration and auto-regression techniques.
This paper determines that the greater the country’s current comparative advantage in an exported good, the higher the risk of export diversion between the Halal and conventional markets. The diversion risk, however, disappears with a lower current comparative advantage.
To take advantage of the fast-emerging Halal market, a country should expand export of commodities with relatively low current comparative advantage but high demand in the target market, along with supportive trade policies to build competitiveness in the long term.
This study fills the gap in the literature by investigating if the theory of comparative advantage can predict the market diversification risk that may arise from the expansion of exports to the Halal market occurring alongside existing exports to the conventional market.
The research outcome presented in the paper is partially funded by the Halal Ecosystem (HE), GA21 Research Platform, Monash University Malaysia; and the research has utilized the research facilities of Monash University Malaysia. An initial version of the article was presented at the 12th International Conference on Management Science and Engineering Management (2018 ICMSEM). The authors thank the participants for their valuable feedback which helped us to further improve the current draft. The authors are thankful to the editor and the anonymous reviewer/s for their valuable comments.
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