Potential Benefits to the State of Qatar from Membership in the GCC Customs Union

This paper uses cointegration and regression analyses to assess potential benefits to the State of Qatar from the recently established Customs Union between the six member states of the Gulf Cooperation Council (GCC): Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the Unitesd Arab Emirates. This assessment is based on an analysis of the long-term relationship between Qatar Intra-trade with other members of the GCC and Qatar total trade. The LR tests based on maximal eigenvalue of the stochastic matrix and the trace of the stochastic matrix suggest that the null hypothesis of no cointegration cannot be rejected for Qatar intra-trade with Bahrain, Saudi Arabia and the United Arab Emirates. However, the null hypothesis of no cointegration should be rejected for Qatar intra-trade with Kuwait and Oman. Thus, there is evidence of long-term relationship between Qatar intra-trade with those two GCC members and Qatar total trade with non-GCC countries. The regression results suggest that Qatar total intra- trade with both Saudi Arabia and the United Arab Emirates grew at a much faster rate than Qatar total trade with non-GCC members during the period 1980-2000. Hence, the postulates of the theory of customs unions gradually become increasingly more relevant to Qatar trade with Saudi Arabia and the United Arab Emirates. On the other hand, the past growth of Qatar intra-trade with Bahrain, Kuwait and Oman suggests that Qatar economic integration with these three members is not likely to increase Qatar's economic welfare if the current path of intra-trade growth continues.