This paper examines the feasibility of a Common Currency Area (CCA) among 10 (Middle East and North Africa) MENA Countries. The 10 sample countries constitute the six GCC Countries and the four Agadir nations. Methodology Approach Macroeconomic data for the 34 year period 1970 to 2003 is used. Feasibility is examined by analyzing the symmetry of response of countries within each group to a common external shock. The impulse response functions (IRF) from a Vector Autoregression Model is used. The strength of lingkages within each economic bloc was examined using Pearson pairwise correlation and variance decomposition. Findings Among GCC countries, the results show the existence of strong lingkages among the monetary variables, signifying strong monetary sector integration. Such integration however is lacking where the real sector is concerned. Despite the symmetry seen in the impulse response functions, variance decomposition showed the absence of any meaningful influence of countries on each other within the bloc. Amongst the Agadir nations, the results show no correlation in real output growth, some correlation among monetary variables but no symmetry whatsoever in response to external shocks. The variance decomposition too did not show mutual influence intra group. Implications The lack of real sector integration will present a challenge to GCC’s desired goal of a CCA by 2010. The Agadir nations appear to be simply a loosely knit economic grouping with little integration of any kind. Thus, hopes of a CCA among Agadir nations is far too premature.
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
12733.
Length: Date of creation: 2008 Date of revision:
Sep 2005 Publication status: Published in The International Journal of Emerging Markets 2.3(2008): pp. 197-215 Handle: RePEc:pra:mprapa:12733
Find related papers by JEL classification: F30 - International Economics - - International Finance - - - General F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2002.
"Optimal Currency Areas,"
NBER Working Papers
9072, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003.
"Optimal Currency Areas,"
NBER Chapters,
in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356
National Bureau of Economic Research, Inc.
[Downloadable!]