Macro-Economic Linkages Between GCC and G7 Countries.

One of the consequences of globalization is the increased vulnerability of small nations to the events happening in the advanced world. This study estimates the macro-economic linkages between the GCC and the G7 countries. A small model has been developed with only seven key variables. Four of these correspond to the GCC countries, anmely their GDP, exports, imports and prices. The other three variables are the world oil prices, GDP and the prices (consumer price index) of the G7 countries. Three versions of the model have been estimated. They include a standard Vector Auto Regression (VAR), a Vector Error Correction Model (VECM) and a structural Vector Auto Regression model (SVAR), in which a Keynesian type structural model is used along with the VAR to avoid contemporaneous recursivity implied in a standard VAR.