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

Osama Sweidan ()

The International Trade Journal, 2013, vol. 27, issue 2, 156-172

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.

Date: 2013
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DOI: 10.1080/08853908.2013.738515

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Handle: RePEc:taf:uitjxx:v:27:y:2013:i:2:p:156-172