Do AEO Programs Facilitate Trade? An Empirical Assessment of the OIC Member States1

The Authorized Economic Operator (AEO) program comprises of comprehensive trade facilitation and security improvement measures that also serve the overarching objective of institutional development. The aim of the current paper is to analyze the impact of AEO program adoption on trade of the members of the Organization of Islamic Countries (OIC) for the period of 2000-2017 by using descriptive analysis, convergence analysis and gravity model. Gravity analysis spans the period of 2000-2017 for 132 countries of which 57 are the OIC Member States. Both the traditional and the structural gravity analyses show that AEO adoption by OIC member states has no impact on the bilateral trade of these countries. Our analysis suggests that there is a high level of convergence in terms of AEO implementation among the OIC Member States. However, there are a number of serious challenges both in the design and the implementation of the programs. This de jure-de facto differentiation stands as one of the main reasons in regards to the effectiveness of the AEO programs.