gcc states' import demand: the effects of geopolitics

8/6/2019 GCC States' Import Demand: The Effects of Geopolitics

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Nader Habibi

GCC States Import

Demand:The Effects of Geopolitics

Brandeis UniversityCrown Center for Middle East StudiesCrown Paper 6 June 2011


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Crown PapersEditorNaghmeh Sohrabi

Consulting EditorRobert L. Cohen

Production ManagerBenjamin Rostoker

Editorial BoardAbbas Milani

Stanford UniversityMarcus NolandPeterson Institute for International EconomicsWilliam B. QuandtUniversity of VirginiaPhilip RobinsOxford UniversityYezid SayighKings College London

Dror ZeeviBen Gurion University

About the Crown Paper SeriesThe Crown Papers are double-blind peer-reviewed monographs coveringa wide range of scholarship on the Middle East, including works of

history, economics, politics, and anthropology. The views expressed inthese papers are those of the author exclusively, and do not reflect theofficial positions or policies of the Crown Center for Middle East Studiesor Brandeis University.

Copyright 2011 Crown Center for Middle East Studies, BrandeisUniversity. All rights reserved.


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IntroductionIn ecent yeas, the high pice f cude il and natual gas haveinceased the puchasing pwe f il-expting Aab cunties,as a esult f which the cmpetitin amng industial cuntiest expt gds and sevices t these cunties has intensified.For r or o or or or r

o o ro 2000, M E or rk oor r or. Frror, oo oo Ar or o o o-or MENA (ME Nor Ar) or; o-o-or Ar or E, Jor, Moroo o r r o oo k jo r or or. T k- or, orkr r ro o o ro o-r or o or Ar oo. T o-or Ar

or o r r oo ro r 2000 2008, r r or or k r.1

or or r or o o oo or o r or r r r r rk r o r r rr o r rr or o or

rk r o or S r o o or ro rk r r joror or k r or o r rk r or rk


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Pr rk r o U S Wr ro C or rk o ror r orr rk r o o r o or

o oo ooo or o or or or ro rk r

o r or o rr o r o G Cooro Co GCC: S r U rr K O Br Qr or o ro o oo r or rk r r ro o r or r

r o o or rk o GCCor o rk r o orr r o r or o GCC or r ooo r r or o ror

o o or o or

oo or z o o oo r Gro Do Pro or r o or r r r rk r o r rr r o o or or o oo ooo or o o oo ooo or or o ro or oo r r ro r or ror r o r r k oo or o o

or o ro

S o o Pr o or rk r or o oo ooo or oo r or or o ro o oooor r oro o oro o or r rk r o

orr r oo ooo or r rr or orUS r ro r or o o r


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r ro US o r or q ro o U S rr o o o o r o r o r or O o U S r

ro ro r r or r r or S r U Qr r or r r ro oo S r Y or r or r r o US ro or oor r ro o o ro r rr o r or or r ooo P or r or r or o r o r or o US oo

r or r or r orr o r r or ro or o or or r oo o o Q rror k U S o ro or US ro o k oo o USrro

o o or o o r or o oo or U S r or ro oo r orr oror o r ro oor r rkr or U S or USro o K ro rq oo 99 o o o US rk r S r or GCCor r o r r ro Corr

r o P r ro r oor orzo GO rroo r oo o r ro o roU S or or r3 o oo o r r r o roo or r r ro o r or

or or or r r ro r r r r r o o or rrr or or r or oor or o O or r


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Wor r Orzo WO o o rr r o r o o ro o or r rr o ror ror qo r r ro r o r or

o WO S r GCC or o o 54

Bo U S ro Uo o o r r r r or US r r r Br oroo or O B ro r oo r r or or o o r r r

r or USr r r r5

Uk U S o o r rr ro Uo ork or o r rr ko rorr r r r r rr oroo r or Lo r Sr P or Sor r

rr r rorr r r r6

ro Uo o o r r r GCC o o oo r or or o o r o ro7 or r r C o r r r r r GCC or r ro or k or GCC r k

r o r orz o r o W r r r r or o r or o r rk r o r r rr r rr o o o o or o r ro o oo o or o or rr rk r

ror r o ro oor q oo o or ooo orr o k r o r r o o o r o o o r


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Recent Trends in Arab Import Markets

Bor o o r rk r o or o

r rk o ook r z o rk o r o r or o r or r r : ro $476 o o $6595 o r o 347% o o ro r GCC or: r or o GCC or ro 375% r k o r ror o r oGCC or o or % o o oo o r or r r o r or 5% 99 r GCC or rk r or o or ror r or ro o r jor r rr r r or r oo or ro ro ro rr oro C or U S

Figure 1. Merchadise Imports of Arab Countries, 1985-2008

(in billions of $)

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

GCC countries Non-GCC Arab countries Sixteen Arab countries

Sor: ro or Direction of Trade Statistics, Yrookro r oGCC r or r: r rq orL Lo oroo Y S Sr


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Figure 2. Merchandise Imports of Arab Countries(in billions of $)

100

120

140

160

40

60

80

0

from the USA from China from France+Germany+Italy+UK from Japan

Sor: Direction of Trade Statistics Yrook ro r oGCC ror r: r rq or L Lo oroo YS Sr

o oro o r rk r o C U S r or ro or rro oo: r Gr UK oror rr rrr o r U4 orr o o orr r rr ro rk r o r r o o j o z o oor orr r oo o r

o o o r or ro or r rr r r r r r o rr oor o r or or oo o r r o or rk r ro 9 r o o rk r r oro r o ro U S Or ro o or rk r o C r r ro o r o C oo r or r 9: C jo r o r o roo or o o oo r ro U S Wr


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ro o o rk ro r o ro ro o r C or r

rk r o U4 r or ro r o 3% 99 o 4% 57 o o ook r 7 or U4 rk r r or U4 r r o GCC or ro 5% o % r r r o o o r or: W U4 rkr r S r jo or ro U or r ro K

o o o or U4 rk r ror r or or o ro W U4o o rk r o o r or: or r L r r ork rr r or r or U4rk r 36% ro 4 99 o 7 57


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Table 1. Combined Market Shares of Germany, France, Italy and the UK inArab Countries (3-year averages of the annual market shares)

1988-

90

1991-

93

1994-

96

1997-

99

1998-

2000(b)

2002-

04

2005-

07

Saudi Arabia 27% 28% 26% 24% 23% 22% 21%

UAE 25% 25% 26% 24% 28% 32% 28%

Kuwait 23% 27% 27% 23% 23% 26% 22%

GCC 25% 26% 25% 24% 24% 23% 21%

Arab

Countries(a) 32% 32% 31% 30% 30% 29% 24%

Middle East 33% 36% 34% 32% 31% 28% 26%

Latin

America 14% 13% 13% 12% 11% 10% 9%

Africa 42% 40% 37% 35% 35% 33% 27%

Developing

Countries 26% 26% 24% 23% 22% 21% 19%

Sor: or ro U Cor rk r or r or o ro or o r o r ror U or o: r or r: GCC or roroo L Sr or B or o 99799 99

r o orr o o Sr rror k o rk r ror r rk r or rr r or r r o o r r rrr

US rk r r or o r o U4 or r o o r or roo ro o o or o r

oo r or ro or U S US rk r r or r %4% r 9 o 9% 7


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US o o r GCC rk ro r o 4% 9 o r o% 7 U S ro ro oo S r US rk

r or ro % o r 3% 7 US rk r O Qr U r rr r 9 7 US rkr K r or r r G Wr 999 r ro oo r K rorq oo o ro 7% 99 o k o % 993 r o 5% 999 r %4% r r

o r 3 US rk r r ro o rr r r o or ror U4 or rk r r or rr Lr o or o r r or o US rk

r r or 7 o r r o L r or o or o oror r US o rk r r or oro or o or

Figure 3. USA: 3 Year Average Market Shares in Developing Countries

10%

20%

30%

40%

50%

60%

0%

1988-90 1991-93 1994-96 1997-99 1998-00 2002-04 2005-07

GCC Arab countries Latin America Africa Developing countries

Sor: Direction of Trade Statistics Yearbookro r L o r or


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Table 2. Market Share of the United States in Arab Countries (3-yearaverages of the annual market shares)

1988-

90

1991-

93

1994-

96

1997-

99

1998-

2000(b)

2002-

04

2005-

07

Saudi Arabia 17% 21% 22% 21% 20% 16% 13%

UAE 9% 9% 9% 10% 9% 7% 10%

Kuwait 12% 22% 16% 14% 13% 13% 14%

GCC 13% 16% 15% 14% 13% 11% 11%Arab

Countries(a) 12% 14% 13% 12% 12% 9% 9%

Middle East 13% 15% 17% 16% 15% 11% 12%

Latin

America 34% 46% 44% 48% 50% 44% 36%

Africa 9% 9% 9% 8% 8% 7% 6%

Developing

Countries 21% 25% 25% 26% 26% 18% 14%

Sor: or ro U Cor rk r or r or o ro or o r o r ror U or o: r or r: GCC or roroo L Sr or or o 99799 99

r o orr o o Sr rrork o rkr ror r rk r or rr ror r r o o r r rr r

or r or o rk r r or S r 4 O r rk r r or r or o or o rr r L r rk r r or or

ro r o 5% 9 o 7% 57 GCC rk r ro 4% o % 9 7


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Cr C rk r Uor ro o % 57 ro 4% 9 C rr US

or r 9955 jo % ro r 6 W ro C oo r or C o o rk r US r r rror r 6 ro r or k ro oo or or o r C ro Y r 3 5 ro or U4 o rk r r or r r ro o ro C rk r

o o U S

Figure 5. China: 3-year Average Market Shares in Developing Countries

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.00

1988-90 1991-93 1994-96 1997-99 1998-00 2002-04 2005-07

GCC Arab countries Latin America Africa Developing countries

Sor: Direction of Trade Statistics Yearbookro r

rk r o o r r orrk o or r or o or oU4 C U S o or 56% o oor o r or 99 o r o 47% r 57 r rk r o

or or o r 6 rk r r or jo ro ro 99 ro orr 5 o or o o r o C r r or o


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r : ro 4% 99 o 39% 7 roo o r o C GCC rk or: ro 5% 99 o 7% or o o U o Cor D

Figure 6. Indias Share in Merchandise Imports of Arab Countries

0.0%1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

GCC countries Arab countries

Sor: Direction of Trade Statistics Yearbookro r

Market shares in major import categories r oo r ror q r r or or or r GCC or o 3 or oor 535% o o r or r or or577% o GCC or o or r o o or r or o oor r or rr or r o orr S r o or o o or or o Qr or o

or o or or rorr r or O L rk o r9


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Table 3. Arab and GCC Countries Imports by SITC* Categories, 2008

GCC Countries All Arab Countries**

Value

(in millionsof U.S.$)

Share(%)

Value

(in millionsof U.S.$)

Share(%)

0+1-Food, live animals, beverages,

tobacco 22680.8 8.1% 47669.5 10.2%

2+4Crude materials, inedible, except

fuels; animal and vegetable oils; fats

and waxes 6760.3 2.4% 19955.6 4.3%

3Mineral fuels, lubricants, except

fuels 7990 2.9% 37124.5 8.0%

5Chemicals and related products 18238.5 6.5% 37993.1 8.2%

6Manufactured goods 56552.1 20.2% 95952.6 20.6%

7Machinery and transport equipment 104657.1 37.5% 153648.2 33.0%

8Miscellaneus manufactured articles 24812.6 8.9% 34437.6 7.4%

9Commodities and transactions not

classified elsewhere 37699.5 13.5% 39538.8 8.5%

Sor o : U o Cor * SC= Sr ro rCo ** r or = GCC or + r or LoL oroo Y

r oo r ror q o oor r o o or o r rr r or C ro roo or oo r ooo o or 4 r oo SC or 6 oor 44% o C r or or

r or U S U4 r 99% 9% 6%r


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or o r ror q o or 633% o or r r oor or or r o or or o U S U4 C r o 4% o

4% r or or or o r o r ror q C or rro 33% o 474% or U S o or r o or ro 57% o 4%

Table 4. Exports by SITC* Categories (% Share of Total Exports) in 2008

U.S. China EU4 Japan

0+1-Food, live animals, beverages,

tobacco 7 2.6 6.25 0.5

2+4Crude materials, inedible, except

fuels; animal and vegetable oils; fats

and waxes 6.2 0.8 2.09 1.3

3Mineral fuels, lubricants, exceptfuels 5.9 1.6 5 1.3

5Chemicals and related products 13.8 5 14.48 9.1

6Manufactured goods 9.6 18.1 14.73 11.7

7Machinery and transport

equipment 42.8 47.4 41.1 63.3

8Miscellaneus manufactured articles 10.3 24.3 11.23 7.3

9Commodities and transactions not

classified elsewhere 4.3 0.2 5.11 5.5

Total value of exports

(in billions of $) 1299.90 1217.78 3053.31 714.33

Sor o : U o Cor *SC= Sr ro rCo


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Market shares in imports of manufactured goods r 7 o rk r o orr o r oo or oro ro o r or B 97 6 roor U4 o r rk or r ro

o rr o or r rL oroorrr o r r o r U4 or r or 7% o rk r 975 o 7% o 6 S U4 r o ror r r ro o r or or o r L or Lo Sr

Figure 7. Manufactured Goods:Market shares (%) in imports of GCC

(1987-2006)

Figure 8. Manufactured Goods:Market shares (%) in imports of Levant

(1987-2006)

0%

10%

20%

30%

40%

50%

EU4 China USA Japan

010%

20%

30%

40%

50%

60%

70%

EU4 China USA Japan

Sor: U o Cor D Sor: U o Cor D

Figure 9. Manufactured Goods:

Market shares (%) in imports ofMaghreb (1987-2006)

Figure 10. Manufactured Goods:

Market shares (%) in imports of allArab countries (1987-2006)

0%

20%

40%

60%

80%

100%

EU4 China USA Japan

0

40%

50%

60%

0%

10%

20%

30%



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rk r o U S r oo rko r or r o roor o or r % o r or o ror GCC or US r o %

997 r r o r 6% 6 ror r rr o US rk r or oo or L r

o or or r rr rk o r rk or r oo rk r or r oo r or o r ro 6% 97 o 6% 6 GCC ok

r ro z 3% 97 o 7% 6 k o rk r L r roo rk r r or o o ro r 97 o r o r r o o or roo ro roo o o r oo o o r oo o o SC

r oo orC rk r r or or o r ooo or jo r increase o o r r o r or r oo or r 7o ro rr r 995 rr rk C r ro ro 63% 996 o 53% 6 r r or rr o C r GCC rk

r or ro or or C r r o j % 6 L or r o r or r ro r o % 99 o 444% 6or U4r o 3% r

Market Shares in Machinery and Transport Equipment. r 4 o

r rk r o orr o r rorq or o ro o r or r o k o r oo o oor or rk r o US U4


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U4 rk r r or o r or 4 rr r o r 45% o 55%r r 976 o ro U4 rk r GCC or r r o

o or r r U4 rk r GCC or jo r ro o o 3% 99 o k o449% 4 or o 396% 6 o ro U4 rk r o or r Lr r ro k o 694% 99 o 49% 6r 4 r r ro rk

r o U S U4 o rk r o oro r o r r orr o oo oo ro r o rk or U4 99 o4 r o rk losseso r or US r ro o GCC rk B 99 4 U4 rk r o r US rk r ro 366% o 76% or rr

o r r 56 ro r o r o or ro r or r orr r ro or o r ror q r o or roo r o or or/ro r

Figure 11. Machinery andTransportation: Market shares (%) in

imports of GCC (1987-2006)


imports of Levant (1987-2006)

0%

10%

20%

30%

40%

50%

EU4 USA China Japan

0%

20%

40%

60%

80%

EU4 USA China apan



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imports of Maghreb (1987-2006)

Figure 14. Machinery andTransportation: Market shares (%) inimports of all Arab countries (1987-

2006)

0%

20%

40%

60%

80%

100%

EU4 USA China Japan

0%10%20%30%40%50%60%

EU4 USA China Japan


US rk r r or or o r ror q rr r o r oo rk r r rk rUS rk r r ror q or r976 9% or o 69% r

oo or r GCC rk r 74% %r rr S US oo oo r o roo o r oo r o rr rror o o r oo o o z oro oU S or o r r or o o orC r r or o r ror q o r o r oo r o9% % r r 976 r o r or o r C rk r r r or o r rorq ro ro 3% o % 6 o ro o C or ro r r ro oo or oo o or

ro r r k o o C o or o o rk or r ror q


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Review of Literature on Determinants of ImportShareBr r ro o o r o ooo o k o rr ooz ro r oo or r rr k r ooo or k k Po o or or oo o o o or r o r roro oo r oro r o o r

r o o r o oo o ro r or or o o o or or o o rooo oo or roo o o ro r o r oro oro o r or o or or o or or r ro 969 ro r or ro ro or or orr r ro r or oor or o ro o or or ro o r o oo or O o r o or r r r or or ro o o o or ro or r r rk r o r

or r Prk 9 o o or ro r rr o U S rooo Co C3 H or r o rro o D S DS4 o orr o or i r o orj o o r o r or oj or r o or or o

j Prk 55 r o r o o

r o or r qo or or ro ok


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r r oo or o o or or r r o ro ro ro oror k r o o o or orro ro r rr Po r r o

o o ro o r ror r o r o o r

U ro o r Koo 977 93 o rr o ro o o o o o r r5 o or r r 9 o o o r o o r r Pok 96 Gorok Pok 97 r

Hr o 93 ro o o or r o r o ro or o o o r r rrB o rr r ork Po 999 ooroo r oor o o o r o ro o or H or or

o r r: or or o r or or ro r rr r o or r or o or or r rr r oo ro r rr Po r ro o o ro orro o o r rr o ro r o rr o o r r oror r

o o ro o r ror or ror o or r oro or or r

Sr or o or o oooor o r ro o o Sr 99 o o o US r or or o oor: rr r U S r or

or r rr o r or or or Do oo 993 or or r o or o r or or o o Po orro Sro


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r 993 o o r r o o or U or ro r r o jor or o o or o r o o r o r ro or rro r

r o r rk o r r ro o ro r o o o oor o o o rr roo ooo or r or o o orrCo or S or or ororo or ro r o o ro o o

or o o r rr o ror o or r r r ro 96 97 Lz 9954 o r r o or o oro So : Wr So Uo r ro o or r ro o r r o o r

or r or o or o r or oCo or o L K 5 oo or Kor Pror o o o So Uo or Kor o o ro o C SoUo L K r r ror o or Kor ro o Co r o o o ro r r rk r o or Kor oro o oo o or

or r O r 66 or oo ro o rk or o rq rro o or or oo or or ro 94 o o ro o o ro rrq r: 9 o 999 G Wr US r rq r 34 r o o

rk or o rq r ro o o rq or o r r ro or or o rk


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Statistical Analysis

or o o o or r

r or o G Cooro Co S r U r r K O Br Qr o oor r o ro r: GCC o rr or GCC or + r or L oroo Sr r or or or or r o o o rr or k o o ororr r o o o: U S U4 C o or o rro o r o r rk ro C So Kor or orok rr o 4 r oror or orro ro Direction of Trade (DOT) Statistics7 o r o 969 DOT r or or

r r ror US or Hor o o r r ror or orr ro or r rr ror S r o ror r or oo o orr r o o rr or r rror or orroro r r o or r oor or rr

or r r r o r o o o o o oo or rrr o r r or or r o oro r r rr or ro rro rro o o o o r r oor r r o o

r r r o or r or o S or or oo o o


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Explanatory variables. or r rro o o oo r rorrr r o or or ro ror r j or o r o or

r jro or o oo r o o or or or r rr r o o o or rS GCC or o r or or r ro r oro or/ro r or/ r ro or o rr r ro or or/ro r r r r o

o US C or ro or Crr o orPolitical and diplomatic variables. orr o or o o o or ro r or or r r o or r or o o rr o USr ro

o o o rro U S r or S 5o jor r o r r G Wr rq Wr ro o U S r G Wr o ro o K ro rq oo r r GCC or or r or o O or US o o rq 3 ro ooo

o r o o r or or o r o r roo ro o r r o 3 4 or US ro rk r or o r 5 or o rr o r ro or ro r or USrk r GCC or or ro 37% 99

% 6% 3 4 r o or r or r orr o or o o P 9


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Sr rror k So Sr o r r r or r o orr ro ro So oo oo

Sr k o Wor r Cr orr o U S r or B o or r o o o r or r

Table 5. Effect of Important Events in U.S.Arab Relations on American andEuropean Import Shares

Change in the market

share of

1st Gulf War (Kuwait) (199091)

1990 1991 1992

USA in Saudi Arabia -1.5% 3.5% 2.3%

EU4 in Saudi Arabia 0.9% 0.4% 0.3%

EU2 in Saudi Arabia 0.8% 0.0% 0.3%

USA in GCC -1.0% 3.7% 0.2%

EU4 in GCC 0.8% -0.6% 0.7%

EU2 in GCC 0.8% -0.3% 0.0%

USA in Arab countries (total) -1.1% 2.1% 0.5%

EU4 in Arab countries (total) 1.7% -1.6% 0.2%

EU2 in Arab countries (total) 1.9% -1.7% 0.6%


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Table 5 Continued

Change in the market

share of

Second Intifada +September 11 attacks

(20012) Iraq War (20034)

2000 2001 2002 2003 2004 2005

USA in Saudi Arabia 0.1% -1.2% -1.5% -1.3% 0.3% -0.5%

EU4 in Saudi Arabia -1.2% 0.1% -0.3% 0.1% -1.8% -0.5%

EU2 in Saudi Arabia -1.8% 0.3% -1.1% 0.0% -0.3% -1.0%

USA in GCC 0.6% -0.5% -0.6% -0.8% -1.6% 1.8%

EU4 in GCC 0.2% -0.3% 0.1% -0.5% -0.1% -0.4%

EU2 in GCC -1.8% 0.3% -1.1% 0.0% -0.3% -1.0%

USA in Arab countries (total) 1.0% -1.3% -0.1% -1.4% -0.9% 1.0%

EU4 in Arab countries (total) -1.3% -0.2% -0.5% 0.5% -2.9% -0.5%

EU2 in Arab countries (total) -0.9% 0.1% -0.5% 1.1% -1.7% -1.1%

U4 = r rk r o Gr r UK U = r rkr o r Gr o or r r o roooo o US oo o rq 3 r or = GCC or +r or L oroo Sr


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Estimation Results

or or or o o

o r r o r or o o qo or or ro or rr3 ko rro qo qo r or r r o or r or r rooo or r o or r o r o ro r oror H qo r o oro o SUR o orro or or 6 o r or U S or rr o r or ro Rr o r o r o o rr r o rro k 6 rr oo r r r o r 7 9

6 or r r o o r o US rk r or orro or r orro o o r boldface ro o r or r o or r or r $/ro -99 r o or r o ro o USrk r Br Hor o r r ro oro r * or ** r o r W 6 o o orr o $/ro r oo o o qo


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Table 6. Model Specication: First-Difference Log Equations (Market share ofthe U.S. in each country is the dependent variable. Equations extracted from

each countrys SUR model estimations.)

D r: 97 r3 = GCC or + r or Loroo Sr *= 9% o **= 95%o

USA Bahrain Kuwait Oman Qatar

Saudi

Arabia UAE GCC Arab 13

Total imports 0.532 - 0.5 0.391 0.0887 0.516 0.273 0.267 0.229

0.228 0.021** 0.139 0.634 0.595 0.133 0.053* 0.137

Exchange

rate $/euro

- 0.199 0.297 0.0656 0.446 - 0.047 - 0.32 - 0.051 0.00772

0.642 0.379 0.814 0.19 0.671 0.164 0.679 0.954

Dummy

20012 (2nd

Intifada/

September

11)

- 0.012 0.0996 0.0688 0.0924 - 0.0495 - 0.0142 - 0.0366 - 0.0679

0.949 0.504 0.544 0.524 0.292 0.88 0.486 0.164

Dummy

20034 (,

Iraq War)

- 0.298 0.0864 - 0.223 - 0.23 - 0.00578 - 0.184 - 0.15 - 0.16

0.13 0.59 0.068* 0.134 0.91 0.11 0.018** 0.008**

Dummy

19912

(Gulf War,

0.215 0.489 - 0.202 0.0673 0.152 - 0.0601 0.0963 0.091

0.247 0.002** 0.082* 0.642 0.002** 0.541 0.091* 0.07*

Dummy

199899

(Asian finan-

cial crisis)

0.114 - 0.0286 - 0.11 0.0219 - 0.0666 - 0.232 - 0.129 - 0.0867

0.548 0.846 0.343 0.881 0.155 0.022** 0.015** 0.08

Observations 28 28 28 28 28 28 28 25

"R-squared" 0.197 0.295 0.251 0.13 0.373 0.23 0.423 0.411

p-value 0.33 0.0611 0.156 0.604 0.011 0.217 0.0022 0.0079


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29

r o r r or oo o or o rrr o r o ro o r or or r G Wr o

o r o US rk r K S r GCC o r o 3 r or orr r r GCC or r r oro US r r K ro rq oo r o or o ro o US rk r GCC o or or 34 rqWr o or or or K o o O GCC o r

r rk or or So /Sr o o o o qo

r o 6 r or or C U4Rr r r or rz r or o o r 7 O o or r rr o or

or r o3


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30

Table 7. Direction of Inuence for Signicant Coefcients in SUR Model withFirst Difference-Log Equations

EU4USAChina (CH)Japan (JAP) Bahrain Kuwait Oman Qatar

SaudiArabia UAE GCC Arab 13

Dummy 20012 (2nd

Intifada + September

11)

Dummy 20034 (Iraq

War)

JA

EU4

EU4

USA

JAP

USA

Dummy 19912 (Gulf

War, Kuwait)

EU4

CH

EU4,

USA

JA

USA EU4 USA JAP

USA,

JAP

Dummy 19989

(Asian financial crisis) JAP

USA

CH

Ur: o o < Lor: o < U4: Gr r UK r 3: GCC or + r or L oroo Sr Ur ro: o o ro qo o

r 7 or o o k r rro o oo o o US rk r 34 rq Wr orro US rk r GCC or orro o o o o O G Wr or o orro

US rk r K S r GCC o /Sr or o or or or o o Sr oor r ro r o ror o 3 r or r

orr o ro o r ror 7 r r or ro o or

or or o C r oo or o r o o C 3 o o C So Kor 4 r o o ro r r


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31

o O ro or r 4 or or o o o r qo or US U4 4 o oor r 53 rr ro rk

r o rr o r o rk r o r o r r r ror o33 r o o o r rr o r

Table 8. Direction of Inuence for Signicant Coefcients in SUR Modelwith First-Difference Equations Based on 3-Year Averages of Market Shares

(3-Equation SUR Model)

EU4USAAsia4 Bahrain Kuwait Oman Qatar

SaudiArabia UAE GCC Arab 13

Dummy 20012

(2nd Intifada +

September 11) USA

Asia4

USA

Asia4

USA Asia4 USA

Dummy 20034

(Iraq War) Asia4 Asia4 EU4 Asia4 Asia4 Asia4

Asia4,

EU4

Dummy 19912

(Gulf War, Kuwait)

USA

Asia4

USA

Asia4 USA

USA

Asia4 USA USA

Dummy 19989

(Asian financial

crisis) USA Asia4 Asia4

Ur: o o Lor: o : > 9 or o 4: C So Kor U4: rGr UK r3: GCC or + r or L oroo Sr Ur ro: o o ro qo o

o r or orro o oor o ror r rr o or

r o r rk r o r orro r or So /Sr orr o r o or rk ror U S r GCC or r o


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32

r or o r or orr o or gained rk r or o r o r o ror o ro US ror r ro o o Sr rror

k r o o o o r o or or r o r o o U S V o r j o o kro k ro r o r o r o USor

W o o rk r o or U S oo 34 rq Wr or o

o or o orro rk r o ro or rk r o or rr r ro o C rkr roo r o orr r ro rk or r r o oo or o r orr o U4 or rkr o U Ko r or o r or

3 rk r o r Gr r ro ooo o r r rr Hor rk o r Grr rr rk o o U Ko r rk or r or o r Gr r UK o r or

or or G Wr o o oo

US rk r r o o GCC or ror o r or W GCC or US rkr o oo or KQr S r Br o GCC or r o U S or r r r US ro o rq oo o K o o roror o r US rk r r

r r ro o K r o o oro o r ro o U S o o o o34 G Wr or o o


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33

o orro U4 rk r zz or or r r US oo rq G Wr r oro r o U S

r or r or r 5 o o o or or ro o ror r o o orro ror or or GCC or r r o rr r or o r oo o r r r ror 3 o rr r o r o o

o r r o or or o o r o r or r r


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34

Summary of the ResearchB 3 o r or o

r or ro ro $ o o $65 o r r r or o r r r o r o ooo r or or r or or rk ro ororo r r rk orr o roo r ro ro or o or or oor o roo r ro r or o or r o G Cooro Co GCC or o or or 6% o r or r oo rq o rk r ro o r o o GCC r r r o o or o GCC rk or or

o ro o r or rk or o o o o o rk r o orr o r or o or o r r o ook r o rk ror oro rk r or oro U ro or U o o r r o o rk r o U S C r rk r o or r ro oo Gr r U Ko S GCC o r o orro or rk r or o oGCC or rr r r 9 7 U

S or ro or o rk r r rk C rk r o or r o ro jo ro or o rk r o ro or U


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35

S r r or o o r rk o orr r r or o or rk o o r r o 99 oo or o o r 57 C rk r r

o oo r ro r7 r rr r r r o q r or o r r o r rk r o r or or orro U S o o rk r r rkrr GCC or r r r

o r or o o or o or ro or o or rk o r or rr o or r o Crk r or r o or oro o o r r or o ook

rk r o orr r o o o ro o r o r or o r or: r oo r ror qD r U S or roor rr rk o rk or roo r ro oo ro C or oo ror o o rk o rz r 995 rk or r ror q US ro

o r rk r r r C r or o or r r r C r o roo o or o ro o or ro o ro ror o r o

o r o rro o o o or oo o rrk r o orr r r o Vro r o o


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36

ro o o o o o rr r o o o r ro U S r or oo r or ro US o o o

USr roo or o o or or oo : G Wr o 99 o P Sr rror k US o o rq 34 o r r rk ro orr o r or or o o or r orro o o o

o r or o B o or r So Sr Sr k o o o ror W o o oo o C or ro r o orr rk r

ror USr ro or r or o ro r ro o or ro o rr ro or r ooo o US o r Grooo o US o o rq r r G Wr US oo rq o o US rk r

r or W or o oo r G Wr US rk r GCC or r oro r or 99 99 Corr or oo o o rq US rk r r or o r or o GCC or oo o or US rk r S r o o ro o r rk r

o ro r or r 34 r o US o o rq


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37

r or So /Sr r r ro o r US rk r Br r rk r S r U o oo r o or GCC or or

r or o GCC or r or oo r o US rk r r or o r or S r USrk o r ro o rk gainsor ro or oo r o So Sr k o USSro ror o US ro or r or

Or o o or r r o rk r o orr o r or rr o oo oro C r r oro o o rk r o r o r o ror o r rr o or o ro or r jor oo

orr o r r ror r r rr W r r r o or r o r o o o o o o or r r rro o o rr o r or

rr o o r r rr or ro or r rro o r /rro or or ooo or o o o rr or


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38

AppendixTheory and Statistical Model

o r or r or o o o r o or rk r o o ok Prk35 o or r Prk r or r qo ro o D S DS DS o o o or or or rk r oo r o or or r or

or r o jor oor or qo DSr r ro r o r qo

(1) Log c(,P) = 0

+ k

klogP

k+

k

i* logP

klogP

i+

0

kPk

ki k

r c(, P) = o o or o or r P

1 P

2 P

n Hr P

irr or r

o or ori r r B k r o qo r o log Pi,

r rkr or orr o qo 3:

log c(u, P)

= ai

log Pi

3 ai=

i+

k

iklog P

k+

i

0

kPk

k

qo 3 or or or r o o or or o or r o ro o or o o qo 3 Prk o or z orr o o or M o r P M= c(,P) qo oor o oM Pr or qo 3

r or r o or or orj ori qo 4:

4 aj = j + kj

klog Pj + j log(M)j

k P


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39

qo ro r r or o o or rqo r r or orr rr o o r or r r r or r or or W

ror r o qo rr ooo or o rkr o orr

Conversion to real values. or r or o r or r r or ro o rro oro r r o ro or r o r or or ro

o or o or or ror or r o r o ror o r or r j or r or oor r or r o o o ro r r 3 orr o or o or o or or ro o o r or or r o or r o or

or o or or q o r o o or o oror o or or Coq ko or or or o or r r orr o oro r 9

Table A1. Sources of Data for Export Price Indexes

U.S.

Bureau of Economic Analysis (Export-Goods Price Index, Table

1.1.4)

Italy, UK, Germany IMF

Japan Bank of Japan (Export Price Index)

China

National Bureau of Statistics (Producer Price Index of

Manufactured Goods

FranceNational Income Accounts (Ratio of Nominal to Real Values ofExports of Goods

India IMF (Export Prices, L74&D)

Korea IMF (Export Prices, L76)


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The Estimation Method

rk r o r rr o or or r

ro rk r or rr o o o r o rr r r rk r o orB o ror S Ur Rro SURo or r Orr L SqrOLS rro o k o o SUR o SUR o or or or o o qo or r rr r oro rr or or o orr 5% o o or o or or or r o or r r r o r

The unit-root test

o k r r r r r or r Dkr or r qo 36 r o o Br Qr rk r r r oor or r oro o r r o r r r o r

rro rr r


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Table A2. Multivariate Dickey-Fuller Test for Seemingly Unrelated Equations(Four Equations for Market Shares of USA, EU4, Japan, & China)

Level First Difference

Test value

5% Critical

value (no. ofobservations) Test value

5% Critical

value (no. ofobservations)

Bahrain 33.226 28.15 (28) 79.953 28.894 (27)

Kuwait 17.937 28.15 (28) 79.491 28.894 (27)

Oman 22.287 28.15 (28) 75.384 28.894 (27)

Qatar 30.921 28.15 (28) 164.745 28.894 (27)

Saudi Arabia 8.329 28.15 (28) 46.156 28.894 (27)

UAE 11.818 28.15 (28) 93.898 28.894 (27)

GCC 14.919 28.15 (28) 56.128 28.894 (27)

Arab13 19.631 31.844(24) 53.232 33.168 (23)

D r: 97 r3 = GCC or + r or Loroo Sr rk r r o or o rS r r o o


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Table A3. Direction of Change for Signicant Coefcients in SUR Models withFirst-Difference Equations Based on 3-Year Averages of the Market Shares

(3-Equation SUR Model for each Importer)

EU4USAAsia4 Bahrain Kuwait Oman Qatar

SaudiArabia UAE GCC

Arab13

Dummy 20012

(2nd Intifada +

September 11) USA EU4

EU4*

USA

EU4,

Asia4

USA Asia4

Arab

13

Dummy 20034

(Iraq War) Asia4 Asia4 EU4 EU4

Asia4,EU4

USA Asia4

USA

Asia4

Dummy 20058

(Oil boom) Asia4

Asia4

EU4

Asia*,

EU4*

USA USA Asia4*

USA

Asia4

Dummy 19912

(Gulf War)

USA

Asia4 USA Asia4 USA USA Asia4 USA USA

Dummy 1998-

99 (Asian

financial crisis)

USA

EU4 Asia4 Asia4 Asia4 EU4

Ur: Po S Co Lor: SCo U4 = Gr r UK 4 = C SoKor r3 = GCC or + r or L oroo Sr * S 995 r k Urro: o o ro qo o


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EndnotesAcknowledgments: I would like to acknowledge the valuable comments that I receivedfrom the two anonymous referees that reviewed this article on behalf of the CrownCenter for Middle East Studies. I also would like to express my gratitude to Catherine

Mann, Seyed Moaven Razavi and Mohammed al-Mahroughy for their valuablesuggestions and assistance at various stages of this research. Georges Fadel providedvaluable research assistance. Finally, Im grateful to the management and staff of theCrown Center for generous nancial and editorial support.

1 For a survey of the economic performance of Arab countries after 2000, see

International Monetary Fund, Regional Economic Outlook: Middle East and

Central Asia (Washington, DC, October 2009).

2 Economists have generally been more interested in studying the volume of

bilateral trade among nations than the relative market shares. The most common

analytical model for analysis of bilateral trade is the gravity model, which assumes

that the volume of trade between two nations is a function of the size of their

respective economies (GDP) and the geographical distance between them. (The

gravity model was rst introduced by Jan Tinbergen in Shaping the World Economy:

Suggestions for an International Economic Policy [New York: Twentieth Century Fund,

1962].) Economists and political scientists have inserted additional variables into

the simple gravity model to study the impact of other factorssuch as political

institutions, diplomatic relations between the two countries, and relative priceson

the volume of bilateral trade.

3 Nicholas Blanford, Arab Citizens Seize Boycott Banner, Christian Science Monitor,

May 7, 2002.*

4 Currently ten Arab countries enjoy WTO membership, while six other states have

observer status, which will eventually pave the way for accession negotiations.

5 For more detail on U.S. trade agreements with Arab countries, see Robert Z.

Lawrence,A USMiddle East Trade Agreement: A Circle of Opportunity? (Washington,

DC: Peterson Institute for International Economics [Policy Analyses in International

Economics 81], 2006).

6 For a recent analysis of the Euro-Mediterranean Free Trade Agreement, see ENPI

Info Centre, The EuroMed Partnership,* See also: Luc De Wulf, et al., Economic

Integration in the Euro-Mediterranean Region, Center for Social and Economic

Research, September 2009.*

7 A major point of disagreement in EU-GCC trade negotiations is the refusal of

the European Union to open its petrochemical market to GCC exports. GCC

countries have a signicant cost advantage in the production of petrochemicals, but

European countries want to protect their domestic petrochemical industries.
http://www.csmonitor.com/2002/0507/p06s01-wome.htmlhttp://www.csmonitor.com/2002/0507/p06s01-wome.htmlhttp://www.csmonitor.com/2002/0507/p06s01-wome.htmlhttp://www.csmonitor.com/2002/0507/p06s01-wome.htmlhttp://www.enpi-info.eu/mainmed.php?id=340&id_type=2http://www.enpi-info.eu/mainmed.php?id=340&id_type=2http://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145214.pdfhttp://www.enpi-info.eu/mainmed.php?id=340&id_type=2http://www.enpi-info.eu/mainmed.php?id=340&id_type=2http://www.csmonitor.com/2002/0507/p06s01-wome.htmlhttp://www.csmonitor.com/2002/0507/p06s01-wome.html


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8 The rst round of trade talks between China and GCC countries was held in

Riyadh in September 2009. This was followed by a GCC-China economic forum

in February 2010 in Bahrain. The third round of talks between the two parties was

concluded in June of that year. The rst round of free trade talks between India and

the GCC was held in March 2006, but progress has been slow. The GCC countries

also initiated free trade talks with South Korea in 2008. The 20089 nancial crisisresulted in a signicant slowdown in GCC trade negotiations with potential Asian

trade partners.

9 These statistics were calculated by the author based on United Nations Comtrade

data. The gures reported reect the sum of SITC categories 6 (manufactured

goods) and 7 (machinery and transport equipment). If we add SITC category

8, which covers miscellaneous manufactured articles, the aggregate shares of

categories 6, 7, and 8 will increase to 61% for the entire Arab world and 66.5% for

GCC countries.

10 Data calculated by the Author based on the United Nations Comtrade data.

11 The European currencies, which were closely linked to one another before they

were replaced with the euro in 1997, depreciated sharply against the dollar in

the rst half of the 1980s before reversing course and gradually appreciating

during 198695. When the euro was introduced, it initially depreciated against the

dollar between 1997 and 2001, but subsequently experienced a round of steady

appreciation which lasted through 2009.

12 P. S. Armington, A Theory of Demand for Products Distinguished by Place of

Production, International Monetary Fund Staff Papers 16 (1969),

pp. 15976.

13 Ashok Parikh, An Econometric Study on Estimation of Trade Shares Using the

Almost Ideal Demand System in the World Link,Applied Economics 20 (1988),

pp. 101739.

14 For a detailed analysis of the AIDS model, see A. S. Deaton and J. Muellbauer, An

Almost Ideal Demand System,American Economic Review 70, no. 2 (1980): 31226.

15 See K. Konimoto, A Typology of Trade Intensity Indices, Hitotsubashi Journal of

Economics 17 (1977), pp. 1532, and Andras Nagy, The Treatment of International

Trade in Global Models (Laxenburg, Austria: International Institute of Applied

Systems Analysis A-2361, February 1983) (Working Paper 83-25).

16 Solomon W. Polachek, Conict and Trade,Journal of Conict Resolution 24 (1980),

pp. 5578.

17 Mark Gasiorowski, and Solomon W. Polachek. Conict and Interdependence:

East-West Trade and Linkages in the Era of Detente,Journal of Conict Resolution

26 (1982), pp. 70929.


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45

18 Ruth Arad, Seev Hirsch, and Alfred Tovias, The Economics of Peacemaking: Focus on

the Egyptian-Israeli Situation (New York: St. Martins, 1983).

19 Brian M. Pollins, Does Trade Still Follow the Flag?American Political Science

Review 83, no.2 (June 1989), pp. 46580.

20 A more recent study offers more recent empirical evidence that political tension

and conict have an adverse effect on bilateral trade. See Omar M. G. Keshk, Rafael

Reuveny, and Brian M. Pollins, Trade and Conict: Proximity, Country Size, and

Measures, Conict Management and Peace Science 27, no. 1 (February 2010),

pp. 327.

21 Rebecca M. Summary, A Political-Economic Model of U.S. Bilateral Trade, Review

of Economics and Statistics 71, no. 1 (February 1989), pp. 17982.

22 William J. Dixon and Bruce E. Moon, Political Similarity and American Foreign

Trade Patterns, Political Research Quarterly 46, no. 1 (March 1993), pp. 525.

23 James D. Morrow, Randolph M. Siverson, and Tressa E. Tabares, The Political

Determinants of International Trade: The Major Powers, 19071990,American

Political Science Review 92, no. 3 (September 1998), pp. 64961.

24 James M. Lutz, East European Trade with the Developing World: Soviet

Diplomatic Partner or Economic Self-Interest, International Trade Journal 9, no. 3

(1995), pp. 33362.

25 Kang-Taeg Lim and Jae-Young Kim, Economic and Political Changes and Import

Demand Behavior of North Korea,Journal of Economic Development 27, no. 1 (June

2002), pp. 137150.

26 Ayla Ogus and Can Erbil, The Effect of Instability on Turkeys Bilateral Trade with

Iraq, Turkish Policy Quarterly 4, no. 4 (2005), pp. 16977.

27 For more information about this data base, see: http://www2.imfstatistics.org/

DOT/help/DOThelp.htm.*

28 For an analysis of this issue, see Anton Dobranogov and Ahmad Jalali-Naini,

Explaining Large Inventories: The Case of Iran,Middle Eastern Finance and

Economics, Issue 1 (2007).*

29 The rst Palestinian Intifada began in December 1987 and lasted until 1993. The

second Palestinian Intifada began in September 2000, but there are disagreements

as to when it ended. Some argue that it ended in 2004, while others believe it

lasted until 2005. As far as the impact of the Second Intifada on the image of the

United States in the Arab world is concerned (and the resulting possible surge

in anti-American sentiment), I believe that the impact of the Second Intifada was

strongest in 2001 and lasted through 2002. After 2002, it was overshadowed by the
http://www2.imfstatistics.org/DOT/help/DOThelp.htmhttp://www2.imfstatistics.org/DOT/help/DOThelp.htmhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www.eurojournals.com/mefe%201%201.pdfhttp://www2.imfstatistics.org/DOT/help/DOThelp.htmhttp://www2.imfstatistics.org/DOT/help/DOThelp.htm


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U.S. invasion of Iraq, which had a signicantly greater impact on Arab sentiment

toward the United States. Even in the last quarter of 2001, the impact of the Second

Intifada on the image of the U.S. in the Arab world was largely overshadowed

by the September 11 attacks. This is why I chose to ag 2001 and 2002 as the time

period during which the Second Intifada and the September 11 attacks were the

dominant contributors to Arab sentiment toward the United States.

30 I use a SUR model with the rst-difference log equation of the import share

equation that is described in the appendix. The SUR does allow for differences

in right-hand-side equations, and instead of using the same exchange rate in all

equations, I have used the appropriate exchange rate for each exporting country.

31 In some cases the coefcient was signicant, but it came from an equation with a

p-value of greater than or equal to 0.1, which lessens the signicance of the result.

32 These estimations were performed with rst difference-log values and simple rst

difference values.

33 The results were very similar in terms of the sign and signicance of the

coefcients, but the coefcient t-statistics were larger in the rst-difference model.

34 The improved image of the United States in GCC countries and its impact on U.S.

exports to these countries was remarked on by Edward P. Djerejian, Assistant

Secretary for Near East Affairs in the Clinton administration, who observed in

1993 that [i]n the wake of Desert Storm, the end of the Cold War, and our role

in the Arab-Israeli peace process, many U.S. rms are nding Near East markets

more receptive to American products. This is particularly true in the Gulf, where

both the public and private sectors are increasingly inclined to buy American.

(U.S. Economic Policy in the Middle East: Challenges and Opportunities [speech,

October 4, 1993], U.S. Department of State dispatch).*

35 Parikh, An Econometric Study.

36 This test was conducted in Stata (econometric software) using the MADFULLER

command. Multivariate Augmented Dickey-Fuller is a panel unit root test that is

suitable for Seemingly Unrelated Regression (SUR) models. The null hypothesis of

this test is that all the time series in the panel are nonstationary. Therefore the null

hypothesis will be rejected even if one time series is stationary. For more details,

see Mark P. Taylor and Lucio Sarno, The Behavior of Real Exchange Rates during

the postBretton Woods Period,Journal of International Economics 46, no. 2 (1998),

pp. 281312 .

*Weblinks are available in the PDF version at www.brandeis.edu/crown
http://findarticles.com/p/articles/mi_m1584/is_n40_v4/ai_14642129/pg_5/?tag=content;col1http://findarticles.com/p/articles/mi_m1584/is_n40_v4/ai_14642129/pg_5/?tag=content;col1http://findarticles.com/p/articles/mi_m1584/is_n40_v4/ai_14642129/pg_5/?tag=content;col1http://findarticles.com/p/articles/mi_m1584/is_n40_v4/ai_14642129/pg_5/?tag=content;col1


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About the Author

Nader Habibi is the Henry J. Leir Professor of the Economics of the MiddleEast. Habibi was most recently Managing Director of the Middle East andNorth Africa Division in the Country Intelligence Group. His expertise is theimpact of political institutions on scal and monetary policy, and economicreform in the Middle East. He holds a Ph.D. in economics and a graduatedegree in systems engineering from Michigan State University and has workedas a research fellow at the Middle East Council at Yale University.


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Crown Center for Middle East Studies

Cro Cr or S Br Ur o o ro o rr rr o oorr

Cr rr r ro oo o or rrr r o rP rk rq r S r Cr o or r orko o

o rr or o ook oor Cr r oo or r ro o rrrr o Br o o r rr Cr rr r or Br Ur W o o oj rr rr o Cro Cr k r rr r or o

or or oro o Cro Cr o r/ro
http://www.brandeis.edu/crownhttp://www.brandeis.edu/crown

gcc states' import demand: the effects of geopolitics

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