Within the Arab context, two questions normally arise when addressing the issue of economic integration in the Arab world: Why would rich states agree to integrate with poor ones, and what would be the economic benefit from this integration? The failure to adequately and practically address such an issue was one of the main reasons behind the demise of the Arab nationalism project, despite its rhetoric of creating one single Arab state that would integrate the region’s economies for the benefit of all.

Difficulties with such a scenario fall between structures and policies. The structure factor refers to the disparities in economic power and population and the similarities of modes of production; while the policies factor refers to political conflict of interests and international influences on individual states through bilateral agreements. In terms of GDP, GDP per capita and population (see tables 1 to 3), the GDP of Saudi Arabia is 250 times that of Mauritania, the GDP per capita of Qatar is 90 times that of Mauritania, and the population of Egypt is almost 100 times that of Qatar. Modes of production (labour intensive) and composition of foreign trade are similar. The Gulf countries, because of the oil factor, are more vulnerable to foreign influence. Kuwait has kept its currency based on the US dollar, while others made currency baskets, Oman has opted out for the time being from the process of a unified Gulf custom union, signing a free trade agreement with the US. Several Arab countries, including Morocco, Tunisia, Egypt and Jordan, have also signed partnership agreements with the EU, which provide for preferential treatment for their products.


Table 1
GDP in 2004
in US Dollars in millions    Table 2
GDP per capita 2004
in US Dollars    Table 3
Population 2004
in millions   
Mauritania    1,345.6    Mauritania    451    Qatar    0.67   
Bahrain    11,066.5    Yemen    620    Bahrain    0.71   
Jordan    11,514.4    Sudan    655    Oman    2.26   
Yemen    12,908.0    Egypt    1,143    Kuwait    2.65   
Lebanon    19,754.0    Iraq    1,242    Mauritania    2.99   
Sudan    22,019.3    Syria    1,307    Lebanon    3.87   
Syria    23,501.0    Morocco    1,636    Emirates    4.37   
Oman    24,824.4    Jordan    2,163    Jordan    5.32   
Libya    27,608.8    Algeria    2,411    Libya    6.42   
Qatar    28,451.4    Tunisia    2,946    Tunisia    9.93   
Tunisia    29,252.4    Libya    4,300    Syria    17.98   
Iraq    33,700.0    Lebanon    5,108    Yemen    20.83   
Morocco    50,031.0    Oman    10,965    Saudi Arabia    22.53   
Kuwait    55,721.5    Saudi Arabia    11,122    Iraq    27.14   
Egypt    78,491.8    Bahrain    15,631    Morocco    30.58   
Algeria    84,799.8    Kuwait    21,067    Sudan    33.60   
Emirates    103,832.5    Emirates    23,771    Algeria    35.17   
Saudi Arabia    250,558.3    Qatar    42,656    Egypt    68.65   
Source: Arab Monetary Fund, Economic Indicators, 2005

Fiscal and asymmetrical federalism could provide a framework and mechanisms for dealing with such disparities, which are also common to other federal systems. Germany has one large central pool for all incoming revenues. Out of this central pool, the federal government makes its distribution to Länder governments. However, because the latter are highly represented in the federal decision-making structure and are responsible for the implementation of policies, they can greatly influence which policies are adopted and how these are carried out. Western Australia wanted to secede from the Commonwealth in 1932, because of the high burden it carried in financing other poorer states since the establishment of the Federation in 1901. The matter was only resolved after the Federal Government made generous concessions. Provinces in Canada get their funding as a percentage of the national tax, and they have more freedom in designing and implementing programs than their German counterparts. The Arab states’ disparity in wealth and population could also be translated, within an Arab federal union, into asymmetrical representation, veto power, more control of natural resources, different taxation systems and social benefits, opt-in or opt-out or time bound restrictions.

The arguments for the economic benefits from a federal union could be traced back to the Federalist. Hamilton, in Federalist No. 11, 12 and 13, outlines the basic utility of the Union in commerce, revenue and taxation, and the need for a strong Union Navy to protect American trade routes, ships and interests. By creating a Union, Hamilton argues, “we may oblige foreign countries to bid against each other, for the privileges of our markets,” and “Commercial enterprises will have much greater scope from the diversity in the productions of different States. When the staple of one fails from a bad harvest or unproductive crop, it can call to its aid the staple of another. The variety, not less than the value, of products for exportation contributes to the activity of foreign commerce. It can be conducted upon much better terms with a large number of materials of a given value than with a small number of materials of the same value.”

Other benefits include the harmonization of government policies, reduction of bureaucratic administrative costs, diversification of productions, and internal equalization. The UNDP Arab Human Development Report 2002, citing high population growth rates, rising unemployment, and modest economic growth coupled with increasingly intense competition from emerging markets in Eastern Europe, Latin America, and Asia, has identified regional economic cooperation as essential for national regional development. The following paragraph best illustrates the UNDP approach to economic development in the region: “No Arab country alone can adequately achieve dramatic social and economic progress based on diversification of sources of income and acquisition of competitive capabilities in the fields of accumulated knowledge and industry. However, by coming together, Arab countries can reap the benefits of size and scale, diversify their combined economies, and open up opportunities for investment that would be unavailable in the absence of coordinated efforts and cooperation”.

All the preceding arguments have been used in the Arab context, but more on ideological grounds than as a functional approach to fit the Arab nationalism project. The success of European economic integration, despite two World Wars, presents a sharp contrast to the failure of the Arabs to do the same, and adds another practical incentive in the age of regional economic blocks. However, some doubt the feasibility of modeling Arab economic integration on the European model.

Whether or not federalism is conducive to economic development in the developing world is an open question, but what is clear is that while Arab nationalism, because of its centralist tendency, has failed to accommodate the disparities between Arab states, the Arab League, because of its weakness, has also failed to coordinate regional cooperation, development and integration plans. Federalism, with its ability to accommodate diversity and with the fiscal and asymmetrical tools available to it could provide a more successful framework.