Real growth co-movements and business cycle synchronization in the GCC countries: Evidence from time-frequency analysis

A closer business cycle synchronization is foremost for establishing a stable and effective monetary union. In this paper, we examine whether this required condition is attained for the Gulf Cooperation Countries (GCC), to the extent that the latter have sought to create a common currency area in 2010. Using the real growth rates as proxies for business cycles in the GCC countries, our findings from a continuous wavelet approach uncover that the real growth rates in most of the countries within the GCC region comove with the others over the short and medium terms, while long-term co-movement of real growth rates is only found in seven out of the 15 country pairs. In particular, the two major countries of the GCC, Saudi Arabia and the United Arab Emirates, share common growth cycles with the remaining countries. We also find that, between the two potential country member candidates for the GCC, Jordan and Morocco, only Jordan's growth cycle tends to synchronize with the one in the existing GCC countries. Overall, these results underscore the heterogeneous degree of business cycle synchronization, across time and horizons, not only among the existing GCC countries but also between the existing and potential country members. Our time-frequency framework is thus useful in providing a straightforward answer on the prerequisite for the monetary union establishment in the GCC economies.