Quantifying the Determinants of the GCC’s and Korea’s Exports and an Analysis of the Economic Impact of a Korea-GCC FTA

Abstract

This dissertation aims to quantify and analyze the determinants of the six Gulf Cooperation Council (GCC) countries and Korea and to evaluate the effects of the potential Korea-GCC FTA. First, to analyze the determinants of the exports of Korea and the GCC countries, two augmented gravity model of trade were applied to three sets of data for the seven countries. The three models: the Pooled OLS, the Fixed Effect (FE) and the Random Effect (RE) were applied to each of the three datasets that include the top 55, 45 and 35 trading partners for the GCC countries, and 80, 60 and 40 trading partners for Korea. The findings of the first gravity model in the study reveal that the exporter and importer GDPs have a positive and significant effect on Korea and five of the GCC countries, except for Qatar. The distance has a significant and negative effect on Korea and Oman. The exporter’s GDP per capita has a significant and positive effect on those of Saudi Arabia, Bahrain, the UAE, and Oman. The exporter’s population has a significantly positive effect on the six GCC countries. The importer’s population has a significantly positive effect on those of Kuwait and Bahrain, and negative effect on Korea. The language has a significant and positive effect on those of Kuwait, Bahrain, and Oman. The FTA has a significantly positive effect on Saudi Arabia and Bahrain, and a significantly negative effect on those of Qatar and Oman. The economic block GCC has a significant and positive effect on those of Kuwait, Bahrain, and Qatar. The most applicable sets to explain the exports flow are: the 55 trading partners RE model for Kuwait and Oman, 45 trading partners RE model for the UAE, the 35 trading partners RE model for Qatar, the 35 trading partners pooled OLS model for Saudi Arabia and Oman, and the 60 trading partners RE model for Korea. The findings of the second gravity model in the study reveal that the exporter’s GDP has a positive and significant effect on Korea, Saudi Arabia, the UAE, and Oman. The importer’s GDP has a significant and positive effect on Korea and the six GCC countries. The distance has a significant and negative effect on those of Korea, Saudi Arabia, and Oman. The exporter’s population has a significantly positive effect on those of Kuwait, Saudi Arabia, and Qatar. The importer’s population has a significantly positive effect on those of Kuwait Bahrain and Qatar, and negative effect on Korea and Saudi Arabia. The language has a significant and positive effect on those of Kuwait, Bahrain, and Oman. The FTA has a significantly positive effect on those of Bahrain and Qatar and a significantly negative effect on Oman. The economic block GCC has a significant and positive effect on those of Kuwait and Bahrain and significantly negative effect on Saudi Arabia. The most appropriate sets to explain the exports flow are the 55 trading partners RE model for Kuwait, Saudi Arabia, Bahrain and Oman, 45 trading partners RE model for the UAE, 55 trading partners Pooled OLS model for Qatar, and the 60 trading partners RE model for Korea. Second, to evaluate the potential effect of a Korea-GCC FTA, the CGE model was applied by using the Global Trade Analysis Project (GTAP) and applying six scenarios with different levels of trade liberation: 100, 75 and 50 percent cuts in tariffs, and the same cuts in tariffs in addition to the Total Factor Productivity (TFP). The results show that in term of the economic growth, Korea and the GCC countries witness different levels of positive effects, whereas Korea and the UAE are the most beneficial. Moreover, the welfare also has a positive increase for the six GCC countries and Korea, where Korea, the UAE, and Saudi Arabia are the most beneficial countries from signing the FTA in term of welfare, respectively. Also, with more open trade, the UAE is expected to gain the most in term of the economic growth then Korea, Qatar, Kuwait, Saudi Arabia Oman and Bahrain, respectively. Korea is expected to gain the most in welfare then UAE, Saudi Arabia, Kuwait, Qatar, Oman, and Bahrain, respectively. Moreover, Kuwait is expected to gain the most in terms of trade then Qatar, Oman, the UAE, Saudi Arabia, Bahrain, and Korea, respectively. Finally, The Korea-GCC FTA can motivate the development of the production of many sectors for each country and promote the bilateral exports for the most of the exporting sectors and the total exports.