Abstract:

Purpose - This paper explores empirically the determinants of the bilateral trade balance for Jordan-Turkish economy, and the impact of the free trade agreement between Jordan and Turkey on the Jordanian-Turkish trade balance. Methodology - The study used Autoregressive Distribution Lag (ARDL) model to estimate the long run relationship between Jordanian- Turkish bilateral trade balance and its determinants during the period from 1978 until 2017. Findings - The result of the analysis found that the real effective exchange rate has a positive effect on the trade balance in the long run, and negative effect on the trade balance in the short run, while the relative money supply and relative GDP have a weak effect on the trade balance in the short and long run. Also, the result points out that the impact of the free trade agreement is insignificant on the trade balance in the long run, which supports the position of the Jordanian government, which has revoked the work in this agreement. Conclusion - The most important policy implication to be concluded from these empirical findings is that devaluation of Jordan Dinar against Turkish Lira can be used to accomplish an improvement in the trade balance of Jordan against Turkey. However, increasing the relative money supply or relative income will not achieve the desired goal.

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