What are the Potential Economic Benefits of Enlarging the Gulf Cooperation Council?

Abstract

This paper uses a variant of the IMF's Global Economy Model (GEM) to estimate the macroeconomic benefits of Yemen's accession into the Gulf Cooperation Council (GCC). After calibrating the model to Yemen and the GCC block, several simulations are carried out to estimate the potential impact of economic integration on both regions. The paper draws two fundamental conclusions. First, regional integration enhances competition which produces large economic benefits for both Yemen and the GCC. In particular, we show that in some cases economic integration can increase GDP in Yemen by up to 14% and in the GCC by up to 7% over the long run. Second, even if market structures do not improve substantially, GCC enlargement can still generate substantial spillover gains in each block. More specifically, one measure of economic prosperity measured by consumption can increase by up to 7% in Yemen and up to 8% in the GCC.Regional integration, competition, IMF's Global Economy Model (GEM),

Establishing Monetary Union in the Gulf Cooperation Council: What Lessons for Regional Cooperation?

“…Simulation based on the IMF's Global Economy Model, however, shows that the inclusion of Yemen could produce large economic benefits for both Yemen and the GCC countries, amounting to an increase in GDP of as much as 14%-18% for Yemen and 7%-20% for GCC countries in the long run (Chami, Elekdag, and Tchakarov 2004). The benefits largely accrue from greater competition and efficiency in the goods market of Yemen and in the labor markets of GCC countries.…”