The effect of business environment on trade in Gulf Cooperation Council countries

This paper aims to investigate the effect of business environment indicators (time required to start a business, time required to register a property, time required to enforce a contract, and time to resolve insolvency) on trade in a sample of four Gulf Co‐operation Council (GCC) countries: Kuwait, Oman, Saudi Arabia, and United Arab Emirates.

The methodology included in this paper is based on a regression analysis of annual data on trade and business environment indicators for the 2003‐2009 period. The data are pooled across the four countries. The empirical analysis uses the fixed effects estimation procedure as this is considered to be the most appropriate given the nature of the available data and sample countries.

The results obtained through fixed effects estimation provide strong evidence that the time required to start a business and time required to resolve insolvencies is negatively and statistically significantly correlated with imports. The findings also reveal that the time required registering a property, the time required to enforce a contract, and the time required to resolve insolvencies are negatively and statistically significantly correlated with exports. Other standard determinants of imports and exports are also confirmed.

The major limitation is the absence of measures of business environment indicators for two of the six GCC countries (Bahrain and Qatar) where consistent measures were not available and these countries are eliminated from the empirical analysis.

These results lead to the conclusion that domestic business environment matters for trade in the GCC countries. There is a need for GCC countries to continuously reform their business environment so as to be integrated and stay competitive in this globalizing world.