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Gravity Model At Gcc Essay

5836 words - 24 pages

Journal of Economic Integration
23(1), March 2008; 42-56

The Trade Potential of the Arab Gulf Cooperation
Countries (GCC): A Gravity Model Approach
Dr. Houcine Boughanmi
Sultan Qaboos University

Abstract
The GCC region has recently witnessed the creation of a customs union between
the countries of the region as well as the signature of many free trade areas with
countries/blocs outside the region (i.e. US and EU). The purpose of this paper is
to investigate the potential of trade of the GCC countries within the context of the
old and the emerging preference trade arrangements in the region of Middle East
and North African Countries (MENA). A gravity trade model was estimated based
on ...view middle of the document...

edu.om
©2008-Center for International Economics, Sejong Institution, All Rights Reserved.

The Trade Potential of the Arab Gulf Cooperation Countries (GCC): ~

43

• JEL classification: F15
• Keywords: Gulf Cooperation Council (GCC), Trade potential, Gravity model,

Free trade areas, Trade creatior, Trade diversion

I. Introduction
The countries of the Gulf Cooperation Council (GCC) have recently launched a
customs union (GCC-CU) with the objectives of enhancing regional intra-trade and
advancing the process of their economic integration with the rest of the world1. At
the same time most GCC countries have separately signed Free Trade Areas
agreements (FTA’s) with the United States, and have been for long collectively
engaged in negotiation with the European Union to create a GCC-EU Free Trade
Area. In addition, all GCC countries are now members of the Greater Arab Free
Trade Area (GAFTA) and all are members of the World Trade Organization (WTO).
This proliferation of FTA’s and other integration schemes in the region is part of
a recent global phenomenon. Worldwide, there has been a surge in the number of
regional trade arrangements created despite the increasing role of WTO to
strengthen the multilateral trading system. More than half of the existing regional
trade arrangements worldwide were established after the creation of WTO in 1995
(WTO, 2005). This has renewed interest in studying the trade and non trade effects
of Regional Trade Arrangements (RTA’s) and their merits (or non merits) over the
multilateral trading system sponsored by WTO.
The purpose of this paper is to use a gravity model to investigate the effects of
the GCC, as a preferential trade arrangement, on total intra-trade and determine the
trade potential of GCC with countries or groups of countries with which a
preferential trade arrangement is signed or still in negotiation. A pooled time series
-cross-sectional regression method is used to estimate the model based on 7500
bilateral trade observations, ranging from 1990 to 2004, and covering bilateral
trade of the whole Middle East and North African countries (19 countries) with 69
trading partners (see list of countries in the appendix). The Middle East and North
African region (MENA) is chosen as it represents a reference group for the GCC
countries with which they have intensive trade relations in addition to their
historical and cultural links.
1

The GCC as a Free Trade Area was created in 1983 and includes 6 members: Saudi Arabia, United Arab
Emirates, Oman, Kuwait, Qatar and Bahrain.

44

Houcine Boughanmi

The gravity model has been applied to a wide variety of countries, regions and
levels of commodity aggregation. In the MENA region, Al-Atrash and Yousef
(2000) for example used a gravity model to address the question whether intraArab is too little. He estimated that intra-Arab trade and Arab trade with the world
are lower than would be predicted by the gravity model suggesting greater scope
for regional...

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