Effects of the EU-GCC Economic Agreement on the Margins of Trade

Abstract

ABSTRACT In 1988, the European Union (EU) and the Gulf Cooperation Council (GCC) signed an economic agreement. In 1991, negotiations began on a Free Trade Agreement (FTA) between the two regions; those negotiations were suspended in 2008. This article investigates the effects of the 1988 EU-GCC Economic Agreement on the margins of trade between the two regions. Given the large size of trade between the EU and the GCC, there could be larger gains from more trade liberalization between the two regions. Therefore, a gravity model of international trade was applied to a set of extensive and intensive margins of bilateral trade flows among 57 countries representing the EU, GCC, and their major trade partners during the period of 1980–2015. The results suggest that the EU-GCC economic agreement led to significant, yet small increase in trade mainly along the extensive margin. Accordingly, these findings indicate that the proposed FTA can have a positive effect on trade for both blocs.