Trade Openness and Real Investment in Jordan An ARDL Bound Testing Approach

This paper investigates the relationship between trade openness and real investment in Jordan, over the period 1976-2010. An Autoregressive Distributed Lag (ARDL) approach is employed in order to explore the association between investment and trade openness by estimating an investment function for the Jordanian economy and incorporating trade openness as a determinant of investment. The Empirical results provide strong evidence on the presence of a long-run stable investment function. In the short-run, trade openness has a positive and significant effect on real investment; a consistent result with the literature. Therefore, the results confirm the significant impact of trade openness on real investment found in the previous literature using a cointegration technique. This finding emphasises the importance of the trade liberalisation effects on real investment especially in the case of Jordan.