The Determinants of Labor Productivity in Jordan During the Period 1980-2017

Abstract

This study aims at investigating the long-run and short-run relationships between labor productivity in Jordan and each of capital intensity, wages, trade openness and regulatory quality over the period 1980-2017. All the study variables are found to be stationary at the first difference. Johansen cointegration test revealed that there is a unique cointegrating equation. Therefore, Vector Error Correction Model (VECM) was implemented to estimate the short and long-run effects. The empirical results show that capital intensity, wages and regulatory quality have significant long-run positive impact on Jordanian labor productivity. However, all the independent variables have insignificant short-run effects on labor productivity during the study period. The significant negative coefficient of the error correction term (ECT) confirms the existence of long-run relationships. Moreover, this paper highlights the important role of regulatory quality as a governance indicator in improving labor productivity in Jordan, thus the study recommends improving public administration, strengthening governance, and applying the appropriate policies and regulations that promote and enhance national and foreign direct investments, and ensure efficient allocation of resources.