The past decennaries have witnessed an increasing integrating of the GCC economic systems in the universe economic system. This is apparent from a figure of links. First, the high portion of foreign trade in the GDP of the states of the part reflects that these states export oil to the remainder of the universe in return for their demands of capital goods, consumer goods, and other inputs. For illustration, in the twelvemonth 2000, the openness ratio of the GCC part was approximately 78 % , exports plus imports as a ratio of GDP, a big ratio by the criterions of both the developed and developing states ( AMF, 2001 ) . However, the ware exports within the GCC part for the twelvemonth 2001 was about $ 9,137 million or approximately 5.7 % of these states ‘ entire exports. This is a little ratio when compared to 46.9 % in the East Asiatic Economic Caucus ( EAEC ) , 61.3 % in the EU and 55.5 % in NAFTA ( World Bank, 2003: 322 ) . This meager ware trade consists chiefly of rough oil imports by Bahrain ‘s refineries from Saudi Arabia every bit good as a re-export of foreign goods from Dubai ( UAE ) to states like Oman and Kuwait. As such, most of these states ‘ trade is with the traditional spouses, such as the U.S, Japan, the EU, and the East Asiatic states ( AMF, 2002:135 ) . Exports from the GCC part is dominated by rough oil, which formed about 88 % of the entire exports in the twelvemonth 2000 while the taking classs of imports for the same twelvemonth were: machinery and conveyance equipment 39.5 % , manufactured goods 17 % , nutrient and unrecorded animate beings 15 % , and chemicals 9 % ( GCC Secretariat General, 2003 ) . Second, since the oil bonanza of the 1970s, GCC states have invested their oil excesss in the remainder of the universe, peculiarly in the industrialised states. Today, some estimations put these states ‘ foreign assets at more than $ 500 billion of comparatively liquid assets ( Henry and Springborg, 2001:180 ) . Third, because of their little population sizes, the states of this part are really dependent on migratory labour force to implement their development programs. An Al-Najar article shows that migratory workers contribute to more than 72 % of the entire labour force and about 95 % of employment in the private sector. ( Al-Najar, 2001:196 ) . Finally, the low duty rates in these states are expected to fall to less than 10 per centum with the execution of the imposts brotherhood that began in 2003 ( For drumhead information on the six GCC economic systems, see Table 1 ) .

Challenges and Opportunities

It is clear the GCC economic systems are extremely integrated in the universe economic system. However, integrating in the universe economic system and recognizing the possible additions from such integrating are two different things. There is grounds that the GCC economic systems have a dissatisfactory record on many foreparts with regard to integrating. The experience of these states over the past two decennaries points to a figure of failures and failing. The apprehension of these failures and their rectification in the coming old ages will find the extent to which the GCC economic systems benefit from their integrating in the universe economic system and their ability to run into the challenges of development in the coming old ages. The failure of these economic systems was in the countries of growing, trade, unemployment, and investing.

Economic Growth

While it is easy to originate growing, it is far more hard to prolong. This is true in the instance of the GCC economic systems that have achieved really high rates of economic growing following the quadrupling of oil monetary values in 1970s, yet had the worst economic growing record in the last two decennaries by international criterions. Harmonizing to IMF, these states have experienced a important diminution in existent per capita GDP in the 1980s and really low growing in the 1990s. Many perceivers attribute this hapless public presentation to the weak overall public presentation of the Middle East and North African Countries known as MENA [ 4 ] over the same period. For illustration, between 1980 and 2001 the part ‘s existent per capita GDP did non increase at all, compared to an mean one-year growing of 6.3 per centum in the East Asiatic states, and 1.3 per centum in the other developing states ( World Economic Outlook, September 2003: 65-67 ) . In add-on, there is some grounds that many of the MENA states that had negative entire factor productiveness [ 5 ] were oil bring forthing states and had a hapless economic growing record ( Abed and Davoodi, 2003: 6-8 ) . The growing chances of the GCC economic systems in the coming decennary are besides non promoting. The World Bank forecasts that the universes economic slow down will negatively act upon both oil monetary values and the exports of the part. In the following decennary, the growing rate of the GCC part expects to be approximately 2.6 % a twelvemonth, connoting a existent diminution of 0.4 % in per capita income. This expected growing rate is less than the expected growing rate of 3.6 % for the MENA part which in bend is lower than the expected rates for all other parts in the universe except that of Sub-Sahara Africa.


The GCC economic systems are little unfastened economic systems that have relied on the remainder of the universe to sell their major beginning of income, oil, and purchase in return about all their demands of consumer goods, capital goods, and labour services. Therefore trade liberalisation has a figure of advantages that can, in the proper economic policy scene, lead to a sustainable economic development of the part. One advantage includes supplying the GCC states with a market mercantile establishment for oil and oil related industries in which they have a comparative advantage and of exposing domestic industries to competition. The latter, in bend improves their productiveness and efficiency, and provides them with entree to better and modern capital goods therefore bettering both the efficiency of their procedure and the quality of their merchandises ( World bank, 1999/2000: 52 ) .

There is no uncertainty that the openness of these economic systems has provided them with a market mercantile establishment for their rough oil and therefore the foreign exchange needed to import all their demands from the remainder of the universe. As such, trade was important in the states ‘ economic growing that began with the quadrupling of oil monetary values in the early 1970s. The portion of the oil sector in the GCC part is about tierce of GDP and three-quarterss of one-year authorities gross and export grosss ( Fasano and Iqbal, 2002 ) . Yet, the GCC ‘s economic growing is still non self-sustaining for two of import and related grounds. First, one characterizes their growing by high footings of trade volatility due to the international fluctuations in oil monetary values [ 6 ] . Over the last 30 old ages, the volatility of existent GDP growing in the GCC and other oil bring forthing states has been twice the norm of that in the non-oil bring forthing MENA states. These states ‘ portion of the international oil market fell by more than 50 % over the last two decennaries ( Abed and Davoodi, 2003: 3 ) . Second, the GCC states failed to accomplish any variegation in their exports toward manufactured goods, as did other developing states. For illustration, as a group, East Asiatic states increased their portion in universe exports from 8 % in 1965 to 13 % in 1980, and to 18 % in 1990. The major beginning of this growing was manufactured exports. So, what explains this disparity in the impact of trade on the development of the two parts? Why did trade consequence in the variegation of the economic constructions in the East Asiatic economic systems, taking to a more stable and sustainable economic growing while the same did non take topographic point in the oil-rich GCC economic systems? Is it the alone cultural and geographical fortunes of the East Asiatic Economies? Is it because the GCC states do non gain their wealth through productive work ( Zakaria, 2003:73-76 ) ? In the position of many perceivers, the success of the East Asiatic economic systems is attributed to a combination of unfastened trade and authorities outgos geared toward human and physical substructure and heavy imports of capital and engineering ( World Bank, 1995: 52 ) . A figure of theoretical and empirical surveies on the relationship between trade policies and economic growing confirm this position, which points to two chief decisions. First is that no state has of all time developed by merely following free trade governments. Alternatively, success narratives such as East Asia have been a consequence of chances offered by universe trade and domestic investing and institution-building scheme ( Rodriguez et al, 2001 ) . The other decision is that a more broad trade improves resource allotment by relocating factors of production from less productive to utilizations that are more productive. In the short tally, nevertheless, a more broad trade could hold some inauspicious effects on the economic system, which include the rise in the figure of unemployed, the aggravation of poorness, and the autumn in authorities grosss ( Winters, 2000: 43-49 ) . The deduction is that a more broad trade should be done in a gradual mode to minimise these costs and safety cyberspaces should attach to to extenuate its inauspicious effects. Indeed this is the attack that the East Asiatic states adopted ( Stiglitz, 2002: 60 ) .


Another component or avenue of globalisation is the flow of capital, which has been faster than trade in recent old ages. Capital flow, particularly foreign direct investing, can play a important function in the development of the part by supplying it with direction expertness, developing plans, and advanced engineering and market mercantile establishments ( Borensztein et al, 1998: 115-135 ) . Foreign direct investing besides contributes to the enlargement of end product and exports. For illustration, in Korea, foreign subordinates accounted for between 65 and 73 per centum of end product in the electrical and electronics sector ( Kozul-Wright and Rowlhorn, 1998: 74-92 ) . In pattern, nevertheless, merely a little figure of developing states have attracted the foreign direct investing. Since the mid-1990s, approximately $ 1.5 trillion worth of capital flowed to the developing states. Of that entire, less than 5 % went to the MENA states and out of the FDI of the same entire 5 % flowed to the part ( Lipsey, 1999 ) . Brazil, Indonesia, Malaysia, Mexico, and Thailand have been among the top 12 receivers of foreign direct investing in each of the past three decennaries. Get downing in the twelvemonth 1990 China managed to fall in the top 12 having states and was able to pull about $ 265.7 billion in foreign direct investing in the twelvemonth 1998. The point of these figures is that the GCC part has failed to pull any signifier of capital over the last two decennaries outside of what may be those invested by the oil companies. On the other manus, the part was a net exporter of capital since the early 1970s and today the GCC as a group has more than $ 500 billion in foreign investing. Thus, the GCC part did non merely neglect to pull foreign direct investing, but it has besides failed to maintain its ain private and public capital. Many ascribe this failure to severe limitations on the ownership of concern by aliens, weak substructure and fiscal markets, insecure belongings rights, the deficiency of macroeconomic stableness and crystalline economic information, and the limited investing chances.


Many expect globalisation to take to an addition in international migration, which like capital flows and trade offers possible additions to both the host state and the state of beginning. This is so because the flow of labour improves the public assistance of the migrators through higher earning income, their states of beginning through remittals, and the flow of labour benefits the host states by supplying them with the accomplishments they need at lower cost. The experience of the GCC during the last three decennaries is one illustration of this phenomenon. Following the quadrupling of oil monetary values in the early 1970s, the GCC states embarked on ambitious development strategies which could non hold been implemented without the migratory labour force that began to pour into the part from all states. Meanwhile, the educational system was turning at unprecedented rate [ 7 ] . Most of these alumnuss, nevertheless, were non equipped with the accomplishments needed for an business where productiveness determines salary and rewards. Alternatively, they had the given, and therefore preparation, for governmental places, where rewards are non related to productiveness. As a consequence, the states of the part began, in the early 1990s, to see a turning unemployment rate among GCC subjects particularly university alumnuss in a part where migratory workers contribute the dramatis personae bulk of both the employment in the private sector, every bit good as the employment rates overall [ 8 ] . The estimations of this structural unemployment among subjects range between 420,000 and 475,000 national workers for the GCC part as a whole. This represents about 4.7 per centum of the entire labour force and about 17.8 per centum of the entire national labour force ( Girgis, 2000:5 ) . This unfastened unemployment will, if non solved, be a beginning of tenseness in the part in the old ages following.