Trade and Intra-regional Integration: Is Arab Region A Potential Candidate for Economic Union?

Abstract

The existing economic/currency unions such as the ?Dollar Zone? and the ?Euro Zone? have spurred academic and political dialogues regarding the economic integration in the Arab region. This paper analyzes recent inter- and intra-Arab trade trends and its regional patterns of trade, based on the standard gravity model of international trade. As the conventional gravity model has predicted, countries with closer distance significantly trade more than otherwise in the Arab region. However, higher GDP per person weakens the intra-Arab exchange. Possible explanatory factors include the different levels of economic development in Arab, sub-grouping trade arrangements between individual Arab countries (e.g. ?Maghreb Union?) and the European counterparts, and the Gulf oil exporters? trade with the non-Arab developed nations around the world. It is found that Arab countries with bilinguals (i.e. Arabic and French) and/or dual religious beliefs (i.e. Islam and Christianity) tend to significantly diverge their bilateral trade. Particularly, such alternative in reality offers Arab countries greater trade option inter-regionally. Given these findings, it is suggested that creating an intra-Arab economic union is currently infeasible, and a needing caution is essential for any pursuit of such integration.