The large country effect and contagion in the gulf region :

Abstract EN

This paper envisages the existence of contagion in the Arabian Gulf economies.

It examines whether there has been contagion in the region following the 1987 U.S.

stock market crash and the 1997 Thai exchange rate devaluation.

Results from annual data and tests based on correlation coefficients, ARCH / GARCH estimates and direct change (regression) propagation effects suggest the existence of contagion transmitted mainly through Saudi Arabia, the largest economy of the region, to smaller Gulf countries.

Such results are supportive of diversification in trade and production by smaller countries of the region.

The results also indicate that countries with similar economic and demographic structures, such as the Gulf economies, are likely to benefit from a complete economic integration.