Trade diversion risk for halal food exports

Purpose The purpose of this paper is to investigate the link between trade diversion risk and new Halal market exploration. Design/methodology/approach 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. Findings 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. Practical implications 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. Originality/value 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.