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Volume :35 Issue : 132 2009      Add To Cart                                                                    Download

GCC Common Currency A Panel Analysis of Intra-Trade and Economic Activity Correlation .

Auther : Prof. Mohammad I. Al-Sakka - Dr. Musaed A. Bin Eid

     The focus of this study is on measuring the trade intensity correlations and economic activity levels of the GCC members, which is known as the main argument behind establishing a common currency in general. If trade intensity correlations and economic activity in member countries are high, the prospects of a successful common currency will also be high, and member countries will be able to maximize their benefits of the common currency. Under these conditions, member countries are likely to face common shocks; thus, it will be easy for them to adopt unified economic stabilization policies, especially a common monetary policy. On the other hand, if trade intensity correlations and economic activity levels are weak, the common currency will not find a solid ground to launch.

     The study provides a theoretical analysis of the advantages and risks of the GCC common currency, as well as an intensive review of the literature related to the common currency project of the GCC. Proposed convergence criteria for entering the GCC common currency were also analyzed. The study developed a model to test the relationship between trade intensity correlations and economic activity of the GCC based on three definitions of intra trade; intra trade exports, intra trade imports and intra total trade. Before estimating the model, a panel unit root tests are calculated as well as panel cointegration tests. Panel error correction model for trade intensity correlations and economic activity of the GCC members are also estimated for the three definitions of trade intensity.

     Results of the study show that trade intensity correlations and economic activity levels are weak which suggests that there is no solid background for launching a common currency in the GCC area. Results also suggest that members of the GCC need to spend more efforts in strengthening their cooperation and diversifying their economic structures to deepen their intra trade and thus maximize their benefits of the common currency.

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May 18, 2017

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