Economic diversification and intra-GCC merchandise trade. An empirical analysis during 1995-2015
| DOI | https://doi.org/10.1108/WJEMSD-06-2017-0028 |
| Pages | 25-40 |
| Published date | 12 February 2018 |
| Date | 12 February 2018 |
| Author | Subhadra Ganguli |
| Subject Matter | Strategy,Business ethics,Sustainability |
Economic diversification and
intra-GCC merchandise trade
An empirical analysis during 1995-2015
Subhadra Ganguli
Department of Accounting and Economics, Ahlia University, Manama, Bahrain
Abstract
Purpose –The purpose of this paper is to analyze merchandise trade patterns among the GCC states with
the backdrop of economic diversification within these economies.
Design/methodology/approach –This empiricalresearch quantitatively analysespatterns of merchandise
tradeamong the GCC states during1995-2015 with specificfocus on concentration,diversification andsimilarity
of (export and import) tradeindices as well as diversification within GCC economies.
Findings –The paper concludes thatwhile Bahrain merchandise export structure shows dissimilaritywhen
compared withother GCC states during 1995 and 2015,its imports appear to be very similarwith those of the
rest. The other five GCC states show more similarity among themselves in both merchandise exports and
importsthan that of Bahrain. Only UAE has shownan increase in both concentrationand diversificationindices
though the increased numbers are still lowerthan those of the other GCC states and low in absolute terms.
Originality/value –The GCC has embarked on economic diversification; however, there is relatively less
trade within the GCC as compared with other regional trading blocks. The paper considers trade within the
GCC to explore the degree of similarity, diversification and concentration of traded products of each country.
Further study should analyze the impact of diversification on intra-GCC trade. The results of this paper will
be of value to GCC policymakers for providing a clear rationale for boosting trade and diversification with the
long-term goal of a single currency economic union.
Keywords Concentration index, GCC, Bahrain, Diversification, International trade, Similarity index
Paper type Research paper
Sustainable intra-GCC trade –too little to analyze or are we missing
something?
Gulf Cooperation Council (GCC) was set up in 1981 among Bahrain, Oman, Qatar,
Saudi Arabia, United Arab Emirates and Kuwait for strengthening cooperation and
economic development in the region. The GCC has made strides toward economic
consolidation by forming a customs union and a common market. The long-term vision is to
create an Economic and Monetary Union (EMU) with a single currency. Progress toward the
EMU has been slow and the recent oil price plunge has led to concerns regarding
sustainable growth of member countries due to their significant dependence on oil and lack
of diversification (Ganguli, 2016). The GCC economies, though similar, do not meet all the
convergence criteria which were met by the EU accession countries during the 1990s prior to
joining the EMU. Hence the GCC economies are not considered to be ready for a sustainable
single currency zone without further diversification and integration (Ganguli, 2016).
Since 2001, GCC economies have formed a common market and forged a customs union.
Dr Khalid Shams Abdulqader (2015) mentioned that “Perhaps the GCC’s greatest
achievement to date has been its success in invigorating trade among its member states, via
the customs union and the joint market. Merely getting this far was sure to have a positive
impact on mutual trade. […] almost $100 billion in trade took place between member states
in 2013. This is seven times greater than it was in 2000, before the launch of the customs
union. Despite this dramatic growth, however, mutual trade still represents a mere
7.1 percent of the aggregate foreign trade conducted by the six member states.”By contrast,
in 2013 just over 62 percent of the total value of goods (intra-EU and extra-EU trade
combined) exported from EU Member States were directed to other Member States
World Journal of
Entrepreneurship, Management
and Sustainable Development
Vol. 14 No. 1, 2018
pp. 25-40
© Emerald PublishingLimited
2042-5961
DOI10.1108/WJEMSD-06-2017-0028
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2042-5961.htm
25
Intra-GCC
merchandise
trade
(Eurostat Database, 2016). One of the reasons for slow trade is the lack of good
transportation network among the GCC states. Some of the GCC states like Bahrain, UAE
and Qatar have become important aviation hubs which have helped in integrating the
region through air transport. The role of the private sector has remained weak and
government sector has loomed large with heavy expenditure and high employment levels.
Diversification in the GCC: each GCC country has launched its unique diversification
strategy to overcome the hurdles imposed by fluctuations in oil prices under heavy
dependence on oil. Bahrain 2030 economic vision aims to provide a robust and vibrant
private sector with employment of Bahrainis who will be able to access proper healthcare,
education and a sound and secure environment. Its national development strategy aims at
developing a sound business environment aimed at doubling the income of Bahrainis
through a competitive economy boosted by a growing private sector. Bahrain aims to build
a knowledge-based economy.
Kuwait would like to diversify into trade and finance led by a competitive private sector.
It aims at a strong legal system. Moreover, the government targets a sound fiscal system for
a strong private sector growth. The six pillars of reforms include private sector reforms,
labor market reforms, institutional and fiscal reforms among others. Attracting foreign
investment is another goal for the government along with improving business climate,
diversification and PPPs.
Oman identified sectors such as logistics, manufacturing, fisheries and mining for
further development as part of an aggressive strategy for diversification. The ninth
development plan of Oman aims to reduce the oil dependence through SME sector growth,
providing training and education for absorbing more Omanis in private sector by reducing
expatriate employment and creating PPPs.
Qatar’s diversification strategy is built on improvement in education, culture, responsible
use of natural gas, sports, finance and transportation among others. Fiscal restructuring is
also on the way along with efforts for improving the health and education system, improved
participation of Qataris in the labor force, environmental development among others.
Saudi Arabia follows similar diversification strategies including higher participation of
Saudi nationals in the labor force, diversification of the national economy and increased
privatization as the main goals. The National Transformation Program (NTP) aims to
increase the share of the private sector from 40 to 65 percent by 2020 as well as increase the
contribution of the SME sector from 20 to 35 percent. PPP schemes are envisaged
for increased private sector participation, and fiscal restructuring has been implemented for
combating higher budget deficits due to low oil prices.
UAE has been the most diversified among all the GCC states and aims to become a
knowledge-based economy with sustainable development goals for environmental
protection and management.
Literature review
Ravi (2013) pointed out that the intra-GCC trade is at a very modest level and integrated
GCC has not achieved a significant GCC trade level. Moreover the trade is heavily influenced
by oil prices. Boughanmi (2008) suggested that though intra-GCC trade is small, yet it is not
insignificant compared to the predictions of the gravity trade model that was used in his
paper. Askari et al. (2003) pointed that the lack of diversification and complementarity lead
to low intra-GCC trade. Gani (2011) discussed that the lack of business environment has
led to low trade within GCC. He used various business environment indi cators
which showed significant impact on trade in GCC and calls for major reforms in such
areas for boosting trade within the region. Hossain and Naser (2008) discussed the
improvement in trade in GCC since the implementation of the customs union which was also
followed by higher levels of FDI, joint ventures and technology diffusion in the region.
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WJEMSD
14,1
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