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Volume :27 Issue : 101 2001      Add To Cart                                                                    Download

AN EXAMINATION OF TRADE FLOWS BETWEEN SAUDI ARABIA AND OTHER G.C.C. COUNTRIES: ELEMENTS TOWARDS FREE TRADE

Auther : By: Dr. Abdulla A. Al-Kheraiji

 

The reaction of trade flows to change in price and income was analyzed for Saudi import and export demands.  To assess the magnitude and the time path of the trade flows to change in the price level, a distributed lag structure is imposed on the relative prices as the determinants of trade flows.  The results show that import and export usually have relatively large response to income and relative price.

Trade flows among the GCC countries were evaluated through investigating the Saudi Arabia market as an example among these markets.  The import and export behavior for Saudi Arabia is considered in a two-stage budgeting procedure presuming that consumers differentiate products by place of production.  The second-stage import and export models were specified in the first difference of the absolute version of Rotterdam model (RM).  The models were estimated under the assumption of separability in demand system.  The estimated second-stage RM equations and estimated elasticities were obtained using the bootstrap procedure.

The magnitude of own-price elasticities varies with the source of imports and so does that of expenditure elasticities. The calculated own-price elasticities in both demand equations are less than one, while expenditure elasticities are greater than one (at the mean) in five of the ten cases.  The large elasticities promise suppliers that they benefit from market growth and that they increase their earning if the GCC market expands.

Given the nature of import and export demands, economic growth, and economical and political situations in the GCC countries, they could expect as a group, to experience only small welfare gains if they chose not to actively participate in trade liberalization and relied solely on the benefit of partial liberalization among themselves.  More comprehensive participation in trade liberalization involving reductions of both positive and negative production would stimulate demands and increase welfare gains or greatly reduce the magnitude of the GCC countries losses, expand trade, boost economic growth and lead to more job opportunities.

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