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Financial Market Integration In The Middle East: How Big Is The Peace Dividend?

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  • Bent E. SøRensen

    (University of Houston)

  • Oved Yosha

    (Tel Aviv University)

Abstract

Gains from capital and credit market integration are important sources of mutual benefits that have been neglected in the discussion of the economics of Middle East peace. Such integration entails smoother income and consumption as a result of international diversification of investments. We estimate the magnitude of the potential gains from sharing risk among the countries in the region, finding that they are of considerable magnitude, far exceeding the potential gain from sharing risk among OECD countries. The potential gains are high even for the small ‘peace club,’ Egypt, Israel, and Jordan. We find that, in practice, the bulk of the smoothing of country-specific output shocks for iddle Eastern countries has been achieved via saving (countries save less in bad years), and to some extent through international transfers. A considerable fraction of the shocks remains not smoothed, suggesting that the gains from further risk sharing through regional financial market integration are substantial.

Suggested Citation

  • Bent E. SøRensen & Oved Yosha, 2003. "Financial Market Integration In The Middle East: How Big Is The Peace Dividend?," Israel Economic Review, Bank of Israel, vol. 1(2), pages 1-19.
    • Handle: RePEc:boi:isrerv:v:1:y:2003:i:2:p:1-19
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
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    Cited by:

    1. Balli, Faruk & Basher, Syed Abul & Jean Louis, Rosmy, 2012. "Risk Sharing in the Middle East and North Africa: The Role of Remittances and Factor Incomes," MPRA Paper 40739, University Library of Munich, Germany.
    2. Aamer S. Abu-Qarn, 2008. "Six decades of the Israeli-Arab conflict: An assessment of the economic aspects," Economics of Peace and Security Journal, EPS Publishing, vol. 3(2), pages 8-15, July.

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