Oman’s Trade Potentials with Indian Ocean Rim Countries

Abstract

Oman’s regional trade flow, especially with the Indian Ocean Rim countries, is examined within a gravity model framework. The analysis is based on the generalised method of moments (GMM) estimation procedure. The findings show that Oman’s exports are strongly determined by the Indian Ocean Rim countries’ populations, gross domestic product, infrastructure, Oman’s trade policy and a common border and language. Distance is found to induce significant friction for Oman’s imports. We conclude that the Indian Ocean Rim countries are sources of active markets and provide opportunities for greater trade integration. In light of the dramatic decline in world oil prices in recent years, Oman also needs to reduce its reliance on oil earnings and intervene more aggressively in its domestic economy by diversifying its non-oil sector and concentrate more on non-oil led exports.