THE LONG-RUN RELATIONSHIP BETWEEN OIL EXPORTS AND AGGREGATE IMPORTS IN THE GCC: COINTEGRATION ANALYSIS

This paper investigates the existence and nature of long-run relationships between oil exports and aggregate imports in four GCC members’ countries (Kuwait, Oman, Saudi Arabia, and the United Arab Emirates), using the Johansen approach to cointegration. The investigation reveals a strong evidence of long-run relation between the two variables in three members of the GCC (Oman, Saudi Arabia, and United Arab Emirates). Furthermore, the slope coefficients in the cointegration regressions are found to be close to unity. This suggests that the above three member s trade policies were effective in sustaining long-run trade balance between oil exports and imports. Kuwait is the only country, which the Johansen method failed to recognize a unique cointegrating vector. This could be justified by the ability of Kuwait to finance its dependency on imports through its investment income from abroad.