Trade Relationship Between Oman and Its Major Trading Asian Partners

Problem statement: No empirical research exists that examines the interdependence of trade between Oman and its five major trading Asian partners (Emirates, Japan, South-Korea, Thailand and Mainland China). This study attempted to fill this gap in the literature by examining the interaction of trade between Oman and its major trading Asian partner. Particularly, this study attempted to answer the very important question that is there any feedback effect of the trade relationship between Oman and its major trading Asian partners. Approach: A simultaneous-equations model with a double-log form was developed and tested in this study in order to achieve its objectives. Results: The model was estimated using the Two Stage Least Square (2SLS) procedure of estimation and the main findings of the analysis revealed that the price of oil does not seem to be the major determinant of Omani exports to its major trading partners with exception of Japan. The short-term elasticity of Omani imports from its major trading partners with respect to its income seems to be higher (e.g., ranging from 0.55-2.0) in all cases. Conclusion: This study brought new empirical evidence on the trade interdependence and suggested that there is a significant impact (a feedback effect) on the level of GDP of Omaniʹs four major trading partners namely Emirates, Japan and South Korea. Therefore, policy maker in sultanate of Oman should be aware of such interdependence and consider the degree of feedback effect of trade in any economic programming that linked and related to these countries.