The Correlates of Terms of Trade in Oil Exporting Countries of Gulf Cooperation Council Region

Abstract

Terms of trade is associated with the gains from trade and subsequent economic welfare for a nation. Previous studies on terms of trade for oil exporting countries particularly investigating for a favorable terms of trade are missing. The study applies the Fixed Effect model on a panel of six oil producing countries of Gulf Cooperation Council for the period 2008 to 2016 and find that oil price is negatively associated with terms of trade, albeit weakly. Terms of trade is positively associated with economic growth; hence this study refutes the Prebisch-Singer hypothesis for these countries. Moreover, terms of trade is positively associated with trade opens and are not significantly associated with institutions, exchange rate and inflation. The results imply that these oil exporting countries have to reduce their dependence on oil price to attain favorable terms of trade through diversification of the export basket. Also further integration with the world economy through higher trade openness will help these countries to improve their terms of trade. This examination of factors impacting the terms of trade of oil exporting countries of GCC happens to fill a gap in the existing literature.Keywords: Terms of Trade, Oil price, Economic growth, Trade Openness, Institution, Oil exportersJEL Classifications: F14, Q43DOI: https://doi.org/10.32479/ijeep.11366