The role of foreign trade in the economic development of Jordan

Abstract

Jordan is one of many political states which was created after the First World War and which achieved political independence after the Second World War. However, despite its similarities with other such states, Jordan has had, and continues to have, several features which set it apart. This case-study attempts to outline these features within the context of an examination of the trade pattern and development profile of the economy in its post-colonial period.
This study shows why the export sector made a strictly limited contribution to overall economic development and the growth of GDP. Analysis of the interactions, on the one hand, between imports, financed largely by foreign aid, and, somewhat unusually, a surplus on the invisible account, and, on the other hand, the creation of a service-oriented economy, demonstrates how the promotion of a persistent chronic trade deficit and certain structural industrial imbalances resulted within the economy and severely constrained its development potential. Moreover, particular attention is given to the importance and implications of emigrant flows and remittances, which have created further resource allocation biasses that are argued to be detrimental to the long-run interests of the economy.
A critical review is given of three main areas of domestic economic policy that, rather than correcting, have contributed to the above- mentioned imbalances - trade policy; foreign reserves policy and its excessive holdings; credit expansion policies and their adverse effect on resource allocation. Alternative policy solutions are suggested to correct both the trade imbalance and to break the structural development constraint outlined.