We investigate the extent of regional financial integration in the member countries of the Gulf Cooperation Council. The limited volume data available suggests that regional integration is non-negligible. Bahrain and Kuwait investments especially are oriented towards the region. The development of stock markets in the region will also improve the extent of financial integration. Interest rate data shows that convergence exists and that interest rate differentials are relatively short-lived-especially compared to the ECCU, another emerging market region sharing a common currency. Equities data using cross-listed stocks confirms that stock markets are fairly integrated compared to other emerging market regions, although financial integration is hampered by market illiquidity.

Individual countries of the Maghreb have achieved substantial progress on trade, but, as a region they remain the least integrated in the world. The share of intraregional trade is less than 5 percent of their total trade, substantially lower than in all other regional trading blocs around the world. Geopolitical considerations and restrictive economic policies have stifled regional integration. Economic policies have been guided by country-level considerations, with little attention to the region, and are not coordinated. Restrictions on trade and capital flows remain substantial and constrain regional integration for the private sector.

Abstract: The economies of the six Gulf Cooperation Council (GCC) countries are heavily reliant on oil. Greater economic diversification would reduce their exposure to volatility and uncertainty in the global oil market, help create jobs in the private sector, increase productivity and sustainable growth, and help create the non-oil economy that will be needed in the future when oil revenues start to dwindle. The GCC countries have followed many of the standard policies that are usually thought to promote more diversified economies, including reforms to improve the business climate, the development of domestic infrastructure, financial deepening, and improvements in education. Nevertheless, success to date has been limited. This paper argues that increased diversification will require realigning incentives for firms and workers in the economies—fixing these incentives is the “missing link” in the GCC countries’ diversification strategies. At present, producing non-tradables is less risky and more profitable for firms as they can benefit from the easy availability of low-wage foreign labor and the rapid growth in government spending, while the continued availability of high-paying and secure public sector jobs discourages nationals from pursuing entrepreneurship and private sector employment. Measures to begin to address these incentive issues could include limiting and reorienting government spending, strengthening private sector competition, providing guarantees and financial support for those firms engaged in export activity, and implementing labor market reforms to make nationals more competitive for private sector employment.

This volume focuses on the role of the private sector in diversifying the economics of Gulf countries in the post-petrodollar era, when fluctuating and declining oil prices are negatively impacting national expenditures. It explores current policies of countries in the Gulf Cooperation Council and their efforts to shift their economies away from heavy dependence on hydrocarbons. The structural changes will create favorable conditions for the private sector to flourish, shift production dependence from public to private sector, and allow for more efficient resource allocation. Such changes will also allow local banks to provide financial support to small and medium enterprises, boost entrepreneurship for job creation, and strengthen organizational structure and efficiency. This is the first volume in Economic Diversification in the Gulf Region.

Departmental papers are usually focused on a specific economic topic, country, or region. They are prepared in a timely way to support the outreach needs of the IMF’s area and functional departments.

Departmental papers are usually focused on a specific economic topic, country, or region. They are prepared in a timely way to support the outreach needs of the IMF’s area and functional departments.

This volume offers to compare and explain variances of regionalism in Asia by disclosing the distinctive features of regional arrangements and how they evolved during the 1990s and 2000s against the background of a changing global environment. Moreover, it takes up a genuinely ‘inter-Asian’ perspective. By analysing and comparing diverse manifestations of regional integration agreements across Asia and its different sub-regions, it sets out to track their common characteristics and sub-regional facets with respect to their establishment, design and consequences. In addition, political processes accompanying their negotiation and implementation are scrutinized. The analysis encompasses nine case studies written by renowned scholars who together as a group combine an extraordinary mixture of different disciplinary backgrounds as well as expertise on shapes and processes of regional integration in different parts of Asia. The case studies seize on some of the most important features and controversial issues characterizing the second regionalism. Such are the emergence and impact of overlapping FTAs, regional financial and sub-regional economic integration and cooperation, power and the politics of regional integration as well as the nexus between conflict resolution, state failure and regional integration.