Abstract
This article aims at exploring the effect of exchange rate on exports and imports in Jordan over the 1976-2009 period. In addition, it tests if Jordan's workers' remittances create an effect, equivalent to "the Dutch disease effect," on Jordan's exports competitiveness, and it computes Marshall-Lerner condition to check the foreign exchange market stability. We employ the bounds testing approach to cointegration and the error correction model. We find that Jordan's competitiveness has a trend of deterioration. The influence of Jordan's exchange rate on exports and imports is active in the short-run only. Additionally, Jordan's workers' remittances have an impact similar to "the Dutch disease effect" via increasing the cost of living, thus reducing exports competitiveness. Also, Marshall-Lerner condition is less than one; the foreign exchange market will be unstable if exchange rate policy devaluation is adopted. The policy implication of the article is against adopting a devaluation policy in Jordan.
| Original language | English |
|---|---|
| Pages (from-to) | 156-172 |
| Number of pages | 17 |
| Journal | International Trade Journal |
| Volume | 27 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - Mar 28 2013 |
Keywords
- Dutch disease
- Jordan economy
- Marshall-Lerner condition
- demand for real imports and real exports
- real effective exchange rate
ASJC Scopus subject areas
- Business and International Management
- Economics, Econometrics and Finance(all)