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Measuring the Cost of Financial Integration in the GCC: Lessons from the Global Crisis

Mahmoud Haddad () and Sam Hakim
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Mahmoud Haddad: College of Business and Global Affairs, The University of Tennessee at Martin, 214 Business Administration, U.S.A.
Sam Hakim: Corporate Risk, Fidelity Investments, Boston, U.S.A.

Review of Economics & Finance, 2017, vol. 9, 1-12

Abstract: In the wake of the global financial crisis, several leading countries of the Gulf Cooperation Council (GCC) experienced considerable economic slowdown. Equity prices tumbled, bank credit dried up, GDP growth rates came to a halt, spreads on sovereign bonds soared, and risk aversion increased dramatically. These events have demonstrated the negative consequences of financial integration which combined with financial innovation and deregulation have increased vulnerabilities in the GCC and created heightened systemic risks. Using data between 2001 and 2009, we calculate a measure of financial stress for GCC countries and estimate the harm caused by the financia l cris is to the region¡¯s real economy. Our results show that between 2008 and 2009, economic activity in the GCC slowed by 2.6% after controlling for a variety of factors such as oil and stock price movements. We discuss how policymakers can initiate countercyclical policies to stave off the damage from future financial crisis.

Keywords: Financial stress; Financial crisis; Contagion effect; Financial integration (search for similar items in EconPapers)
JEL-codes: G15 G18 G28 G38 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:bap:journl:170301