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Journal of Economic Integration 2011 June;26(2) :217-243.
Does More Trade Potential Remain in Arab States of the Gulf?

Ruhul A. Salim Mohammad Mahfuz Kabir Nasser Al Mawali 

Curtin University
Bangladesh Institute of International Strategic studies
Sultan Qaboos University
Copyright ©2011 Journal of Economic Integration

This paper examines whether the Gulf Cooperation Council Countries (GCC) exerted any trade enhancing impact on its members by employing standard augmented gravity model as well as stochastic frontier gravity model. Panel data sets are constructed over the period of 1980 to 2008 for imports and exports of the bloc's main trading partners along with GCC countries. The major finding is that the trade enhancing effect of the bloc is significant. However, there is still huge unutilized trade potential between the member countries. Several diagnostic tests were run to check and rectify possible problems of heteroskedasticity and autocorrelation as well as cross-sectional dependence.

JEL Classification: F15

Keywords: Gravity Model | Trade Effect | Contemporaneous Correlation | Trade Potential | GCC
1. Al-Atrash, H. and Yousef, T. (2000), Intra-Arab Trade: Is It Too Little? IMF Working Paper 00/10, Washington, DC: International Monetary Fund.
2. Anderson, J. and van Wincoop, E. (2004), Trade Costs, Working Paper # 10480, National Bureau of Economic Research, Massachusetts.
3. Anderson, J. E. and van Wincoop, E. (2003), Gravity with Gravitas: A Solution to the Border Puzzle, American Economic Review, 93, 170-192.
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