This post is paper an on-going joint research with Professor Won Joong from Kangwon University in South Korean. This is the second joint project on the GCC. Here are some preliminary results which will be revised as time permits.
This paper uses a structural VAR model with block exogeneity and identifying restrictions to examine three issue related to economic growth and inflation in the incumbent GCC members –Kuwait, Oman and Saudi Arabia, which are oil producers of varying prowess, and the aspirant country Jordan which is not an oil producer. The first is related to global macroeconomic linkages among the exchange rate, oil price, China’s producer price, U.S.’s export price, EU’s export price and Japan’s export price. The second concerns the relationships between the industrial production and consumer price indices of the selected incumbent GCC member countries -Kuwait, Oman, Saudi Arabia- and the aspiring member Jordan. The third issue is whether there is significant synchronization between the incumbent GCC members and the Aspirant Jordan that would create a case for Jordan to join merely on economic grounds
The results demonstrate that if the GCC members are to focus only on stabilizing inflation, there is no harm for them to accept Jordan as a new GCC member country. On the other hand, the GCC’s objective is, not only on the stabilization of inflation but also on business cycle synchronization, the GCC should take more cautious steps in accepting Jordan as a new member country. Given that Jordan is not an oil producing country, it would be difficult task to achieve business synchronization between GCC member countries and Jordan.
Given, however, that Jordan’s geography, language and culture conformity with other GCC countries, a closer tie can be achieved through enhanced labor mobility and workers’ remittance.
TO BE CONTINUED
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