The Prospect of the GCC Monetary Union and its Expansion to Other MENA Countries

Abstract

This study investigated the possibility of expanding the GCC monetary union to other MENA countries using cluster analysis for the period 2000-2018. It also examined whether the economic characteristics of the countries provide evidence for the readiness of countries for the proposed union. The findings show that there was heterogeneity in the GCC and MENA countries suggesting that the countries were not yet economically ready for the launch of the monetary union. We found evidence in support of the expansion of the GCC monetary union to other MENA countries with two categories of countries, the core and the periphery. We also revealed key variables, including inflation differential, debt service requirement, and current account balance, which clearly demarcated the GCC and other MENA countries. These findings underscore the need for policy-makers in MENA countries to strengthen intraregional trade creating policy, policy coordination, and harmonisation for a successful and sustainable monetary union.