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Measuring the Cost of Financial Integration in the GCC: Lessons from the Global Crisis

Author

Listed:
  • Mahmoud Haddad

    (College of Business and Global Affairs, The University of Tennessee at Martin, 214 Business Administration, U.S.A.)

  • Sam Hakim

    (Corporate Risk, Fidelity Investments, Boston, U.S.A.)

Abstract

In the wake of the global financial crisis, several leading countries of the Gulf Cooperation Council (GCC) experienced considerable economic slowdown. Equity prices tumbled, bank credit dried up, GDP growth rates came to a halt, spreads on sovereign bonds soared, and risk aversion increased dramatically. These events have demonstrated the negative consequences of financial integration which combined with financial innovation and deregulation have increased vulnerabilities in the GCC and created heightened systemic risks. Using data between 2001 and 2009, we calculate a measure of financial stress for GCC countries and estimate the harm caused by the financia l cris is to the region¡¯s real economy. Our results show that between 2008 and 2009, economic activity in the GCC slowed by 2.6% after controlling for a variety of factors such as oil and stock price movements. We discuss how policymakers can initiate countercyclical policies to stave off the damage from future financial crisis.

Suggested Citation

  • Mahmoud Haddad & Sam Hakim, 2017. "Measuring the Cost of Financial Integration in the GCC: Lessons from the Global Crisis," Review of Economics & Finance, Better Advances Press, Canada, vol. 9, pages 1-12, August.
    • Handle: RePEc:bap:journl:170301
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Financial stress; Financial crisis; Contagion effect; Financial integration;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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