Do Exchange Rate Changes Improve the Trade Balance in GCC Countries: Evidence from Nonlinear Panel Cointegration

Figures & data

Figure 1. Trade balance in GCC countries (in millions US $).

Source: World Bank Indicators.

Figure 2. Nominal effective exchange rate index in GCC countries.

Source: World Bank Indicators.

Table 1. Panel descriptive statistics (GCC panel group).

	LTB	LNEER	LOP	LRGDP	LWRGDP	LCPI	LFCPI
Mean	−0.78	4.67	4.02	11.63	4.63	4.50	4.60
Median	−0.78	4.65	4.08	11.69	4.64	4.55	4.59
Maximum	0.24	4.85	4.80	13.45	4.70	4.82	4.76
Minimum	−1.84	4.53	2.96	9.62	4.52	4.07	4.43
Std. Dev.	0.44	0.08	0.53	1.06	0.04	0.19	0.05
Skewness	0.18	0.62	−0.24	−0.09	−0.52	−0.39	0.07
Kurtosis	2.32	2.42	1.77	1.93	2.89	2.03	3.77
Observations	408	408	408	408	408	408	408

Table 2. Panel unit root test.

	Level		Difference
Variables	Im, Pesaran, and Shin W-Stat	p-value	Im, Pesaran, and Shin W-Stat	p-value
LTB	−4.23**	0.03	−5.30***	0.000
LNEER	1.37	0.91	−7.45***	0.000
LRGDP	−1.81	0.99	−2.83***	0.001
LWRGDP	−1.49	0.86	−6.41***	0.000
LCPI	2.96	0.99	−4.29***	0.001
LFCPI	6.17	0.99	−3.16***	0.001
LOP	−0.092	0.46	−9.49***	0.000

Note: ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 3. Panel cross-section dependence test.

Variables	Stat. (Breusch-Pagan LM)	Prob
LTB	201***	0.00
LNEER	798***	0.00
LRGDP	923***	0.00
LWRGDP	937***	0.00
LCPI	884**	0.00
LFCPI	1020***	0.00
LOP	1020***	0.00

Note: ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 4. Panel unit root test with cross-sectional dependence.

	CIPS z(t-bar)	CIPS z(t-bar)
Variables	Level	Difference
LTB	−2.1	3.4**
LNEER	−1.8	4.2***
LRGDP	−2.3	3.6***
LWRGDP	−2.2	3.8***
LCPI	−1.6	5.2***
LFCPI	−1.4	4.9***
LOP	−2.6	5.6***

Note: ***, **, and * indicate that the test statistic is significant at the 1%, 5%, or 10% level, respectively.

Table 5. Cointegration tests.

	Value	Robustp-value
Gt	−4.62***	0.000
Ga	−21.55**	0.000
Pt	−12.42***	0.000
Pa	−42.13***	0.000

Note: ***, **, and * indicate that the test statistics is significant at 1%, 5%, and 10% levels, respectively.

Table 6. Long-run panel estimation results (full sample).

Linear Model		Nonlinear Model		Nonlinear Model with 2008 FC dummy
Variables	Coeff.	Variables	Coeff.	Variables	Coeff.
LNEER	1.48	LNEER_POS	1.98***	LNEER_POS	2.12***
		LNEER_NEG	0.68**	LNEER_NEG	0.87**
LRGDP	−0.57*	LRGDP	−1.48***	LRGDP	−1.22**
LWRGP	−3.40***	LWRGP	1.22**	LWRGP	0.98**
LOP	0.63**	LOP	0.65***	LOP	0.81***
LCPI	−1.62***	LCPI	−1.80***	LCPI	−1.42**
LFCPI	2.36	LFCPI	1.94*	LFCPI	1.35*
				FC2008	−0.28**
Hausman Test	4.41	Hausman Test	12.63***	Hausman Test	10.42***

Table 7. Short-run panel estimation results (full sample).

Nonlinear Model
Variables	Coeff.
ECt	−0.15**
D(LTB(−1))	0.54***
D(LNEER_POS(−1))	−0.65**
D(LNEER_NEG(−1))	−0.22*
D(LOP)	0.15**
D(LFCPI)	1.55**
C	1.57*

Note: ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

Table 8. Panel autoregressive distributed lag short-run estimation results. (Individual countries).

Variable	Bahrain	Oman	Qatar	Saudi Arabia	UAE	Kuwait
	Coeff.	Coeff.	Coeff.	Coeff.	Coeff.	Coeff.
ECt	−0.15***	−0.04	−0.12**	−0.18***	−0.06***	−0.01***
D(LTB(−1))	0.61***	0.43***	0.45***	0.54***	0.59**	0.59***
D(LNEER_POS)	−0.92**	−0.36	−1.22**	−1.34***	−0.62***	−0.18
D(LNEER_NEG)	−0.57**	0.67	−0.78*	−0.68**	−0.42**	−0.92**
D(LRGDP)	−3.43	−0.80*	−2.86**	−0.72**	0.20	−2.55**
D(LWRGDP)	1.14***	0.26	3.19***	1.29***	0.15*	−1.75***
D(LCPI)	0.76*	1.64**	0.99	−0.28	0.63*	−0.95
D(LOP)	−0.06***	0.01***	0.12***	0.05***	0.03***	0.05***

Note: ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.