Abstract
The purpose of this study is to establish a framework with which to assess the prospective gains from monetary integration. Particular attention is paid to the feasibility of establishing a monetary union among the GCC member countries. Under the criteria suggested by the traditional approach to monetary integration the GCC region would appear to be an inappropriate domain for a monetary union. This is due, however, to the limitations of the traditional approach which focuses exclusively on the short run and ignores the fact that monetary integration is a dynamic, evolutionary process in which many changes are likely to occur in the economies of the potential partners in the course of the integration process. The traditional approach also suffers from looking at each of the integration criteria in isolation from the others, disregarding obvious interdependencies. This dissertation emphasizes that the suitability of a region for a monetary union cannot be determined by using a static analysis. Rather, a dynamic analysis which considers the time factor is necessary in order to properly assess the appropriateness of a region for a monetary union. Moreover, the interrelationships among the integration criteria and dependence upon other critical underlying factors have to be taken into consideration.Using an alternative approach utilizing cost-benefit analysis, it is instead found that, the GCC member countries are not expected to incur as much loss as the traditional theory would suggests however, neither are the GCC countries expected to have any large immediate benefits from monetary integration. While most of the costs of a monetary union are expected to be incurred at the beginning of the integration process, most of the benefits are expected to be reaped in the long run. This study suggests that, given the above scenario, the GCC member countries may benefit by forming a monetary union, and that the sooner they form a union the better, simply because these economies are simple ones and that as time goes they will become more complicated.The above suggestion however, relies entirely on the assumption that a complete monetary union is to be established, so that the member countries will abandon their control over their monetary policy and pass it to the supranational monetary authority, which would be responsible for, adopting the common monetary policy. Otherwise, the success of the monetary union cannot be guaranteed.