Evidence of cointegration between intra-trade of each member with other members of the GCC Customs Union

This paper tries to test if there is a long-term relationship between the intra-trade of each member of the GCC Custom Union and its total trade with non-GCC countries. If such a relationship exists, this would suggest that the two variables do not drift too far apart from each other over time, which implies that the relative magnitude of intra-trade between GCC partners did not change much over the past few years. However, if there is no evidence of cointegration between intra-trade of each other member with other members of the GCC and its total trade with non-GCC countries, this suggests that the two variables can drift apart from each other more and more as time goes on. The paper uses unit root test of stationarity, Engle-Granger test for cointegration and the Johansen-Juselius Cointegration Method. These tests were conducted using quarterly data over the period 1982-2005. The results of he calculated ADF statistic and PP statistic are greater than the critical value only for the first differenced variables. This indicates that the variables are non-stationary at levels and have achieved stationarity after being differenced once. According to the Engle-Granger test, we cannot reject the null hypothesis of no cointegration between intra-trade of each GCC member and its total trade with non-GCC countries. However, according to the Johansen_Juselius method, the null hypothesis of no cointegration is rejected for all members of the GCC except Oman. Thus, for Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates, intra-trade with GCC members seems to converge with total trade with non-GCC countries.