Analysing the Dynamic Relationship Between Foreign Direct Investment and Trade Balance

Taleb A. Warrad and Ade S. Nimri

World Economics, 2021, vol. 22, issue 4, 73-86

Abstract: The purpose of this article is to examine the dynamic relationship between FDI and the trade balance in Jordan, by using time series data over the period 1975-2020. In it we used two main variables - Jordan's trade balance (TB) and foreign direct investment net inflows (FDI) - and two sub-variables - Jordan's official exchange rate (ER) and the taxes Jordan levies on international trade (T). The results show a long-term relationship between these four variables in Jordan. The results also confirm that there is a negative long-term relationship between FDI, T and TB and a positive long-term relationship between ER and TB. In the short term, the findings confirm that no dynamic short-term relationship exists between FDI and TB. However, there is a significant and negative short-term relationship between T and TB and a significant positive short-term relationship between ER and TB.

Date: 2021
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