The Effect of Exchange Rate on Exports and Imports: The Case of Jordan

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    15 Citations (Scopus)

    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 languageEnglish
    Pages (from-to)156-172
    Number of pages17
    JournalInternational Trade Journal
    Volume27
    Issue number2
    DOIs
    Publication statusPublished - 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)

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