Abstract
This study aimed to evaluate the impact of Jordan Free Trade Agreements (FTAs) with 17 Arab countries (Greater Arab Free Trade Area (GAFTA)), United States of America (USA) and European Union (EU) on Jordan trade flows. A Gravity model is used to estimate the impact of FTAs in term of trade creation and trade diversion. The study utilizes a panel data sample coving 125 selected countries trading with Jordan for the period 1997-2017. The study used Feasible Generalized Least Squares (FGLS) to estimate the Gravity model. The study results showed a significant impact of Jordan Gross Domestic Product (GDP), trade partners GDP, Jordan GDP Per Capita (GDPC), trade partners GDPC, distance, common language and border variables on Jordan trade. Further, the differences between Jordan and trade parents GDPs showed an insignificant impact on Jordan trade which implies that most of Jordan trade is among trade partners whom have significant different size of GDP. Furthermore, Jordan – EU agreement showed a significant imports trade creation and exports trade diversion. Jordan – USA agreement showed an imports trade diversion and extra regional exports expansion. Finally, Jordan – GAFTA agreement has a significant import and exports trade creation.
Highlights
Foreign trade plays a key role in obtaining the requirements of production for countries that suffer from limited natural resources, opening an external market for small countries products, achieving the economic development and encouraging investment [1]
After an FTA is established, it is important for the policy makers to evaluate its impact; the actual impact of FTA may be quite different from any forecast built based on it
The Jordanian economy suffered from political instability of the region and its trade partners
Summary
Foreign trade plays a key role in obtaining the requirements of production for countries that suffer from limited natural resources, opening an external market for small countries products, achieving the economic development and encouraging investment [1]. Economic and political conditions are the key reasons for countries to form FTAs. Mostly, FTAs formed to eliminate tariffs and some non-tariff barriers [7]. One hundred and twenty four Regional Trade Agreements (RTAs) notified since the adoption of General Agreement on Tariffs and Trade (GATT) in 1947 until end of 1994. The number of FTAs has increased rapidly since the creation of World Trade Organization (WTO) by 1995. Where by end of 2009, the WTO reported more than 220 FTAs [9]
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