Import Demand Behavior of Arab Countries: Recent Trends and Influence of Geopolitical Events

In light of the growing significance of the Arab import market for the global community this study focuses on how the market shares of leading exporters in the Arab world have evolved over the past two decades. In first part of the analysis I looked at the trends of these market shares over time and in comparison to other developing regions. I investigated the market shares of the United States, China, Japan and the aggregate market share of four largest European economies (France, Germany, Italy and the United Kingdom). Since GCC constitutes the largest and most important sub-regional import market inside the Arab world, the study focuses on GCC with more detail. The trend analysis revealed that during 1988-2007 the United States, Japan and European countries have lost market share in Arab markets. China’s market share, which was very small at the beginning of this period, enjoyed a substantial growth over these two decades. The market shares of European countries and the United States were relatively stable before 2000 and most of this market loss was realized during 2000-2007. For Japan on the other hand the market loss was most substantial during the first half of 1990s followed by another noticeable loss during 2005-2007. China’s market share grew at a slow pace up until 2000, followed by faster growth during 2001-2007. In the second part of this analysis I used statistical regression models to investigate the impact of important geopolitical events on relative market shares of the same exporters that were studied in the first section. In light of the complex diplomatic and security relations between the United States and Arab countries it might be the case that Arab imports from the US are sensitive to the ups and downs of the US-Arab relations. To investigate this theory I focused on four important geopolitical events: Gulf War I (1991), Second Palestinian Intifada (2000-2001), The September 11 terror attack (2001) and the US invasion of Iraq (2003-2004). In my statistical model the dependent variables are the market shares of the leading exporters to each Arab country or bloc of countries. The statistical results suggest that the Gulf War I and the US invasion of Iraq have both been associated with changes in US market share in Arab imports. We observe a positive association between Gulf War I and the US market share in GCC countries and the aggregate imports of Arab countries in 1991 and 1992. On the other hand we observe a negative association between the invasion of Iraq and the US market share in aggregate imports of the Arab world. Among GCC countries this negative association is only significant for the US market share in Saudi Arabia. Furthermore, the analysis shows a strong and positive growth in market shares of Asia and Europe during 2003 and 2004 which are associated with the US invasion of Iraq. The results for the second intifada/September 11 event are mixed. This period is associated with an increase in US market share in Bahrain and a negative market share in Saudi Arabia and the UAE. No significant association is detected in other GCC countries or in the aggregate imports of GCC as a group. Nevertheless we observe a negative association between this pair of events and the US market share in the aggregate imports of Arab countries.