Implications of the Growth of China and India for the Middle East

Abstract

The Middle East and North Africa (MENA) region is expected to benefit more than most other regions from continued rapid growth in China and India. This paper analyzes the trade-related implications of this growth for the MENA countries using a global general equilibrium model, modified to take into account the focus of China and, increasingly, India on exports of manufactures from global production chains. To obtain a better idea of the implications for key countries in the region, we developed a database with expanded coverage of Middle-Eastern countries. We find that most of the gains to the MENA region come from improvements in the terms of trade, particularly linked to increasing demand for energy. Exports from the Middle East as a whole are expected to decline although exports from the non-oil economies will likely expand. Fuelled by higher incomes and by increases in the competitiveness of China and India, imports into MENA are expected to increase. In the oil-exporting countries of the Middle East, Dutch-disease effects increase the importance of policies to promote adjustment to the changing world environment.