Relationship between Religion and International Trade
Hilal AKINCI, Yeditepe University, İstanbul 2014
The main aim of this paper is to show whether or not religion has impacts on international trade and how it does happen. To do so, researches about the topic will be covered and some worldwide statistics are gathered together. Empirical Studies
There are few empirical studies about impacts of religion on international trade or its relationship with international trade. In shared research of Emilia Justyna Powell, University Alabama, and Stephanie J. Rickard, London School of Economics, impacts of Islamic law on international trade is examined. Two models which are monadic and dyadic techniques are used in this study. The main purpose of them to demonstrate whether or not countries governed by Islamic law are effected regarding their international trade although they believe that “the importance of countries’ legal systems for trade has declined over time, possibly due to the increased role of international arbitration bodies and/or the standardization of international sales contracts (Powell & and Rickard, 2010). This research is important as being the first direct test of the effect of Islamic law on countries’ trade relations. The researched draws our attention to the situation that trade can be conceptualized as the aggregate flow of goods and services between countries but in fact that flows are a series of contracts between buyer and seller countries. Enforcement of contract is really important to reduce risk and cost of business. In case of occurrence of a problem in the contract courts become important player due to their role of enforcement of contracts. Anderson and Young (2006) found evidence that imperfect contract enforcement reduces international trade by using subjective evaluations of contract enforcement surveys conducted by the World Economic Forum (WEF). Legal institution similarities of countries have a role to reduce the insecurity of exchange between traders sharing same legal tradition and it may reduce transaction costs between countries which, in turn, increase trade flows. This argument is tested by Islam and Reshef (2006) and their result is that countries sharing similar legal systems trade relatively more with each other than others not sharing it. Muslim firms are expected to follow norms drawn from the traditional sources of Islam. Differences between Islamic law and secular legal traditions may cause problem for enforcement of contracts in Islamic law states. Decision of a religious court depends on their religion and personal reading of the Koran causing differences in perception of property. In addition, Lack of standardization in judicial procedures in Islamic law states ends up with uncertainty about the enforcement of international sales contracts. For dyadic model, key independent variable is a measure of a country’s legal system. Civil, Common, Islamic and Mixed laws are examined in the research. As result, joint Islamic dyads, which means two Islamic countries trade and shown as IslamicIslamic, have the lowest levels of bilateral trade flows arguably due to the weak contract enforcement in Islamic law systems in comparison with CommonIslamic and CivilIslamic. This result runs counter to the argument that similar institutions trade more than others by emphasizing the importance of contract’s enforcement. CommonIslamic have a higher potential for international trade than CivilIslamic have, because of that enforcement of contract is better in Common Law countries than Civil Law countries. In the monadic model, the dependent variable is countries’ yearly total trade volume. And the key independent variables are legal system type indicators. The result of this model also shows that enforcement of contract has a key role in international trades and Islamic Law countries have the lowest total trade in average. Another research and empirical work is about relationship between global...
Please join StudyMode to read the full document