The Nature of Trends in the Per Capita Real GDP of Gulf Cooperation Council (GCC) Countries: Some Evidence and Implications

In this paper we attempt to determine whether the per capita real incomes of GCC countries are trend or difference stationary. The distinction is crucial for at least three reasons: first pertains to forecasting; while a trend stationary series tends to return to its long run steady state following a shock, a difference stationary series would tend to carry the impact of such a shock forever. The second has econometric implications because even minor divergences from difference stationarity would lead to non-robust cointegration estimations. The third is about economic theory where the distinction between the neoclassical and endogenous growth models can be settled via empirics of difference or trend stationarity. As the GCC countries strive for more economic integration, correct identification of trends becomes vital in policy making. Our research shows that there is evidence that the per capita real GDP of GCC countries is difference stationary.