The Impact of Jordan-USA Trade Agreement on Jordan Economic Growth: An Empirical Study

Abstract

We investigate the empirical impact of exports from both Qualified Industrial Zones (QIZs) and Free Trade Agreement (JUSFTA) to United States of America (USA) on Jordan economic growth. At the same time, the hypothesis of "export-led-growth" was tested. Both short and long run movement of the growth process are modeled during the 1990-2005 period using the recently developed autoregressive distributed lag (ARDL) approach. We find evidence supporting the existence of weak positive impact of Qualified Industrial Zones (QIZs) and Free Trade Agreement (JUSFTA) to USA on Jordan economic growth. The weakness of this impact may be due to the large share of (QIZs) exports of clothing with a low value domestic added, which correlates with a proportional, greater increase in imports, thus causing negative impact on the measure of GDP. In other words, the "export-led-growth" hypothesis defined by Shan & Sun (1998) is empirically supported. We interpret this as evidence in favor of the expansion of the export sector, which can directly accelerate economic growth. Therefore, the decision-makers should look for alternative policies to strengthen the link of QIZ and JUSFTA with other economic sectors, in order to maximize their benefits.