Without Oil, How Do Gulf Countries Move? Non-hydrocarbon Business Cycles

This paper investigates the empirical characteristics of business cycles and the extent of cyclical comovement in the Gulf Cooperation Council (GCC) countries, using nonhydrocarbon GDP (excluding crude oil and natural gas sectors) and constituents of aggregate demand during the period 1990~2010. Although hydrocarbons still account for an overwhelming share of export earnings and fiscal revenues in the GCC countries leading to a higher degree of business cycle synchronicity at an aggregate level, this is driven largely by external factors influencing the price of crude oil and natural gas. By applying the Christiano-Fitzgerald asymmetric band-pass filter and a mean corrected concordance index, the results show that low level of synchronization in nonhydrocarbon business cycles across the GCC economies and a decline in the degree of synchronicity in the 2000s if Kuwait is excluded from the sample. It is partly because of divergent fiscal policies. The GCC countries do not appear to efficiently coordinate policies, let alone forming an optimal currency area.