The Impact of Remittances on the Import Demand Function in Jordan: An ARDL Bounds Testing Approach

Abstract

The present study investigates the short- and long-run relationships between Jordan’s aggregate import demand function and its macroeconomic determinants, in addition to remittances. The study employs the autoregressive distributed lagged (ARDL) model to estimate the import function over the period 1975–2016. The preliminary statistical tests, the ADF test, confirmed that none of the variables is integrated of order 2, while the bounds testing provided evidence of the existence of a long-run equilibrium relationship between the included variables. Moreover, the diagnostic tests showed that the estimated model is free of the statistical problems. The long-run results indicated that remittances, inflation rate, and investment have a direct relationship with imports, whereas the import price index and FDI have a negative relationship. Based on these results, the study suggests that policymakers implement inflation reduction policies, increase the level of economic activities, and promote remittances inflows since they are mostly directed to investment.