The rise of GCC-East Asian trade: A cointegration approach to analysing trade relationships

Abstract

The economic relationship between the Gulf Cooperation Council states and the countries of East Asia has grown in significance in recent years at the expense of the European Union and the USA. Empirical analysis of GCC-East Asian trade indices shows that East Asian states now dominate GCC trade flows and a number of GCC-East Asian Free Trade Agreements are cementing the long-term economic ties between the two regional blocs, which are based on the complementarity of their economic structures and comparative advantage. Within East Asia, Japan is increasingly having to compete with China and India for both security of energy supplies from the GCC and to supply GCC markets with their manufactured exports. Using a new approach to analysing trade relationships, we utilise cointegration techniques to analyse GCC trade patterns over time. We find econometric evidence of a long-term trade relationship between the GCC states and those of East Asia, in particular China, whose continued economic growth has allowed the GCC bloc to diversify its economic and political dependence away from North America and ‘look East’ for new strategic alliances.