ARE GCC COUNTRIES AN OPTIMUM CURRENCY AREA?

Abstract

In the light of the Euro’s success, many countries seek to duplicate their accomplishment which can happen by unifying their currency. The Optimum Currency Area suggests that countries joining together and establishing a single currency could help improve their economy. This study aims at investigating the feasibility of an Optimum Currency Area among GCC countries. Co-integration analysis of the inflation and the GDP is examined in order to realize this aim. This study used both qualitative and quantitative approach to evaluate the optimality of GCC countries for a currency union and determine the correlation and co-integration of the variables respectively. The co-integration between GCC countries in terms of inflation and GDP were evaluated through EViews software. Data from the years 1980 to 2014 were used in this study for this purpose. Findings suggest that GCC countries have yet to fulfill only one criterion. Thus, this study concluded that GCC countries are not yet fully an Optimum Currency Area.