Bilateral Trade Elasticities of Jordan

Ziad Mohammad Abu-Lila, Qasim Mohammad Jdaitawi

Abstract


This study aims to measure price and income elasticity of Jordanian foreign trade with major trading partners (the Arab countries, the United States, China, and India) to determine the impact of income, relative prices, and real exchange rate on the Jordanian trade balance, using a co-integration methodology and error correction approach, employing an annual data for the Jordanian economy and its trading partners for the period 1980-2013. The main findings show a high price elasticity of Jordanian exports with the most important trading partners, and therefore, the lower the relative prices of exports will lead to an increase in Jordanian exports and improve the trade balance, the findings also showed that the Jordanian imports from Arab countries, and India are sensitive to a change in relative prices, and this means that the decline in the relative prices of imports will reduce imports, in contrast, the rise in the relative prices of imports from China and the United States will lead to reduced spending on imports from these countries because of the price elasticity of imports with China and the United States is greater than one, leading to improved trade balance.
The findings also indicate that the income elasticity of imports of Jordan as a whole is less than one, and this means that Jordan depends on the external world to cover the needs of essential goods, and on this basis, the economic growth in Jordan will stimulate the increase of imports, but by less than the increase in income. While the income elasticity of Jordanian exports to Arab countries is less than one and to China and India is greater than one.

Keywords


Imports Demand; Exports Demand; Relative Prices; Trade Deficit, Exchange Rate, Jordan

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