Impact of trade policies on the economic growth and diversification of an oil surplus economy: The case of Kuwait

 

Faten Jabsheh¹*, Mohammad Chemingui² and Noura Abdul Malek¹

 

Research Article | Published May 2016

Journal of Economics and International Business Management, Vol. 4(1), pp. 1-21.

 

¹Kuwait Institute for Scientific Research, Techno-Economics Division, P.O. Box 24885, 13109, Safat, Kuwait.
²United Nations Economic Commission in Africa, Trade, Finance and Economic Development Division, P.O. Box 3001, Addis Ababa, Ethiopia.

 

*Corresponding author. E-mail: fjabsheh@kisr.edu.kw; Tel. Office: 24989477; Mobile: 99828302.

 

…………………………………………………………………………………………………......................……

 

View Full Text - PDF

 

Real economic growth in Kuwait has averaged 4 percent over the past three decades. Coupled with the growing importance of non-oil economic activities, trade policies and regional trade agreements are viewed as critical tools of economic growth and competitiveness particularly for the upcoming era. With the proliferation of regional trading arrangements (RTAs) over the past years, an economic assessment of their accrued benefits becomes a point of empirical interest. The trend has been towards a deeper form of regional integration arrangements that involves liberalization of goods and services, harmonization of standards, rules governing investment, competition policy and labor movement. This paper provides quantitative estimations of the impacts of the implementation of free trade agreements (FTAs) between Kuwait and other GCC states and their main trade partners (EU and USA). A computational general equilibrium (CGE) model is built to investigate the economic impact and efficacy of various trade arrangements. A review of CGE modeling results confirm that shallow integration may in some instances give rise to trade diversion at least in the short run, and significant welfare gains accrue in the long run only to the extent that deeper forms of regional integration are envisaged. These include commitments to liberalize the services market, improvements in trade facilitation and the investment climate, financial and labor market reforms, the harmonization of standards and other export-related dynamic productivity effects. Moreover, findings confirm that when trade-related activities and strategies are integral to holistic reform, welfare gains become substantial.

 

Keywords: Regional trade agreements, Gulf Cooperation Council countries, customs union, regression, computational general equilibrium.