Essays on economic integration among the Gulf Cooperation Council countries

This dissertation focuses on three empirical research questions regarding economic integration among the GCC countries. Chapter 2 presents the first essay, which addresses the impact of the GCC economic agreements on intra-GCC trade, non-oil trade in particular as little is known about the scope for increased non-oil trade within the GCC. The gravity model of bilateral trade flows is applied to explain patterns of trade, and possible existence of trade creation between members. Understanding the determining factors of the GCC’s non-oil trade volumes is a practical empirical task, as diversification of exports a way from natural resources is seen as one of the main goals of the GCC policies. The second essay, chapter 3, looks at the determinants of business cycles synchronization among the GCC countries and their major trading partners. More specifically, the essay empirically investigates the relationship between trade, patterns of specialization and financial openness and how they determine the synchronization of business cycles. These factors will be evaluated in the context of a system of simultaneous equations approach, which provide an adequate investigation of the direct as well as indirect impact of trade, specialization, and financial openness on output synchronization. Analyzing what determines business cycle synchronization is an important task for a better evaluation of the costs and benefits of adopting the proposed common currency among GCC members. Chapter 4 present the last essay, which considers how much income and consumption smoothing is undertaken by the GCC countries, where an efficient smoothing of output fluctuations is vital for reducing the impact of asymmetric shocks, therefore reducing the cost of adopting a common monetary policy. The empirical approaches are based on decomposing cross-sectional variance in income within the GCC countries, and will shed light on the channels through which income and consumption smoothing take place. Furthermore, the essay focuses on the role of investment portfolio diversification on smoothing income and consumption.