Econometric Analysis of the Bilateral Trade Flows in the Gulf Cooperation Council Countries

INSEL, Aysu and TEKCE, Mahmut (2010): Econometric Analysis of the Bilateral Trade Flows in the Gulf Cooperation Council Countries.

Abstract

This study analyzes the trade flows of the Gulf Cooperation Council (GCC) both among its member countries and with the rest of the world for the 1997-2002 and 2003-2007 periods. In this paper, the research question is whether the trade flows of the GCC countries with their partners have sustained and/or they have developed new relations over time, mainly after the 2003 Customs Union agreement of the GCC. For this purpose, fixed effects models have been estimated in order to obtain individual country effects variable. Then, trade model as a function of distance and income variables and the country effects model as a function of the time invariant control variables have been estimated simultaneously within the panel analysis using the Least Squares and Generalised Method of Moments under the assumption of the presence of cross section heteroskedasticity and the robust standard errors. It has been found that: (1) The order of top fifteen trade partners has changed significantly from the EU countries and the US to the Asian countries after 2003. (2) Exports and imports of the GCC countries are related to the wealth of the partner countries, but not to their distance, mainly due to the nature of their exported and imported goods, the characteristic of the region and developments in transportation facilities.

• Item Type: MPRA Paper
• Language: English
• Keywords: Gulf Cooperation Council Countries; Trade Flows; Gravity model; Panel Analysis; System Estimation
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics

References

Abouchakra, R., Moujaes, C. N., Najjar, M. R., and Shediac, R., (2008), “Economic Diversification: The Road to Sustainable Development” Booz & Company. Antonucchi, D., Manzocchi, S., (2006), Does Turkey Have A Special Trade Relation with the EU? A Gravity Model Approach, Economic Systems 30, 157-169. Australian Department of Foreign Affairs and Trade, More than Oil: Economic Developments in Bahrain, Kuwait, Oman, Qatar and the UAE, Canberra BP, 2007. Baier, S. I. and Bergstrand, J. B., (2004), Trade Agreements and Trade Flows: Estimating the Effects of Free Trade Agreements on Trade Flows with an Application to the European Union-Gulf Cooperation Council Free Trade Agreement, European Economy, Economic Papers, 214. Benedictis, L. D., Vicarelli, (2004), C., Trade Potentials in Gravity Panel Data Models, University of Macerata, Italy. Boughanmi, H., (2008), The trade Potential of the Arab Gulf Cooperation Countries (GCC): A Gravity Model Approach, Journal of Economic Integration, 23(1), 42-56. Bun, M.J.G., Klaassen, F.J.G.M., (2002), The Importance of Dynamics in Panel Gravity Models of Trade, University of Amsterdam, Netherlands. Chirullo, M. and Guerrieri, P., (2002), GCC-EU Relations and Trade Integration Patterns, European Robert Schuman Centre for Advanced Studies, Policy Papers, 02/5, University Institute, Florence. Egger, P., (2000), A Note on the Proper Econometric Specification of the Gravity Equation, Economic Letters, 66, 25-31. Egger, P., Pfaffermayr M., (2002), Long Run and Short Run Effects in Static Panel Models, University of Innsbruck, Austria. Frankel, J., (1997), Regional Trading Blocks in the World Economic System, Washington DC, Institute for International Economic Research. Harris, M.N., Matyas, L., (1998), The Econometrics of Gravity Models, Melbourne Institute Working Paper, 5/98, Australia. Hertog, S., (2007), EU-GCC Relations in the Era of the Second Oil Boom, European and the Middle East, CAP Working Paper, December. Hirsch, S. and Hashai, N., (2000), The Arab-Israeli Trade Potential: The role of Distance-Sensitive Products, International Trade Journal, XIV. Insel, A., Tekce, M., (2009), “Bilateral Trade Flows Of The Gulf Cooperation Council Countries: A Gravity Model Approach”, Topics in Middle Eastern and North African Economies, Volume 11, Middle East Economic Association and Loyola University Chicago, September. http://www.luc.edu/orgs/meea/ Insel, A., Tekce, M., (2010), “Modelling the Trade Flows of The Gulf Cooperation Council Countries: A New Approach to Gravity Model”, Turkish Economic Association Discussion Paper, 2010/2. http://www.tek.org.tr/ Linnemann, H., (1966), An Econometric Study of International Trade Flows, Amsterdam. Ramos, L.M., Zarzoso, I. M., (2005), Does Heterogeneity Matter in the Context of the Gravity Model?, Economic Bulletin, vol.6, 10, 1-7. Statistical Review of World Energy, London IMF, Regional Economic Outlook, Middle East and Central Asia, Washington, D.C, 2007. Sturm, M., J. Strasky, P. Adolf and D. Peschel, (2008), The Gulf Cooperation Council countries: Economic Structures, Recent Developments and Role in the Global Economy, European Central Bank Occasional Paper Series, No. 92, Frankfurt. Tang, D., (2003), Economic Integration Among the Asia-Pacific Economic Cooperation Countries: Linder Effect on Developed and Developing Countries (1985-1999), The International Trade Journal, Vol. XVII, 1. Tinbergen, J., (1962), Shaping the World Economy: Suggestions for an International Economic Policy, The Twentieth Century Fund. Zarzoso, I M. and Lehmann, F. N., (2003), Augmented Gravity Model: An Empirical Application to Mercosur-European Union Trade Flows, Journal of Applied Economics, vol.6, no.2, 291-316.