Exports- and imports-led growth: Evidence from a time series analysis, case of Jordan

Istaiteyeh, Rasha; Najem, Farah; Saqfalhait, Nahil Ismail Article Exports- and imports-led growth: Evidence from a time series analysis, case of Jordan Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Istaiteyeh, Rasha; Najem, Farah; Saqfalhait, Nahil Ismail (2023) : Exports- and imports-led growth: Evidence from a time series analysis, case of Jordan, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 11, Iss. 5, pp. 1-20, https://doi.org/10.3390/economies11050135 This Version is available at: https://hdl.handle.net/10419/328760 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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Economies 11: 135. https://doi.org/10.3390/ economies11050135 Academic Editor: Ralf Fendel Received: 4 March 2023 Revised: 20 April 2023 Accepted: 24 April 2023 Published: 2 May 2023 Copyright: © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). economies Article Exports- and Imports-Led Growth: Evidence from a Time Series Analysis, Case of Jordan Rasha Istaiteyeh 1,*, Farah Najem 2and Nahil Saqfalhait 3 1Department of Economics, Faculty of Economics and Administrative Sciences, The Hashemite University, Zarqa 13133, Jordan 2Independent Researcher, Zarqa 13111, Jordan 3Department of Business Economics, School of Business, University of Jordan, Amman 11942, Jordan *Correspondence: [email protected] Abstract: The purpose of this study is to examine equilibrium relationships and dynamic causality between economic growth (measured as GDP), exports, and imports in Jordan using time-series data between 1976 and 2021. In particular, this research attempts to determine exports-led growth, imports-led growth, growth-led exports, and growth-led imports in both the short-run and long-run. The four time-series datasets, GDP, merchandise exports, merchandise imports, and gross capital formation, were examined using the Dickey–Fuller unit root tests, the Phillips–Perron unit root test, and the Johansen’s trace tests for cointegration. The dynamic properties of the VAR(1) were summarized using Granger causality tests and impulse response functions. The test results showed that the impulse response functions indicated that there might be some short-run relationships among our datasets. The Johansen cointegration tests suggested that the series were not cointegrated, and hence there were no long-term relationships among the time series. It appeared that in the short-run, both GDP and gross capital formation Grangerly caused merchandise exports. A unit shock in merchandise exports, merchandise imports, and gross capital formation caused very small fluctuating responses from GDP, merchandise exports, merchandise imports, and gross capital in the short-run, and the responses approached zero in the long-run. Keywords: Jordan; exports; imports; economic growth; causality 1. Introduction Over the centuries, international trade expressed the international economic relations between countries across different world regions based on common interests. The Hashemite Kingdom of Jordan has made concerted efforts in recent years to mitigate the adverse effects of multiple regional crises on national employment and social stability. In the era of globalization, and within this framework, trade has been at the forefront of policy development to support economic growth and job creation 1 . After a close inspection, according to the Department of Statistics (DoS) 2 data, the volume of total exports 3 in 2021 increased by 17.8 percent 4 to JOD 6.643 billion, compared with 2020, where it stood at JOD 5.639 billion. Figure 1reflects the values of exports and imports value in Jordan from 1994 to 2021. The imbalance between exports and imports in the kingdom started in the early 2000s prior to the global financial crisis of 2008–2009. Imports are almost three times greater than gross exports (SNAP 2014); the negative balance of trade widened after 2009 following the negative external shocks which had affected the Jordanian economy, namely the conflicts in neighboring countries 5 , which had reduced the exports market; the 2010 Arab Spring, the 2011 Syrian Civil War, and ISIS conflict in Iraq and Syria (van IJzerloo 2016). The cascades of events led to an actual boarders closure with key export markets. Adding to that, the disruption of the energy supplies due to the repeated sabotage of the Arab Gas Pipeline6. Economies 2023,11, 135. https://doi.org/10.3390/economies11050135 https://www.mdpi.com/journal/economies Economies 2023,11, 135 2 of 20 Economies 2023, 11, x FOR PEER REVIEW 2 of 21 markets. Adding to that, the disruption of the energy supplies due to the repeated sabotage of the Arab Gas Pipeline6. Figure 1. Exports and Imports in Jordan. This graph is generated using the available data through the Jordanian Department of Statistics (DoS) between 1994 and 20217. It is plausible to argue that the Hashemite Kingdom of Jordan, the upper-middle- income country8, with a population of 11,148,2789, survived the Arab Spring. The country is considered small but indeed not an unimportant country in the Middle East since it has geopolitical importance described as a stabilizing anchor in this context. It is true that the Jordanian economy is one of the smallest in the Middle East, it is poorly endowed with natural fresh water, oil, and other natural resources yet, it has a rich potash industry not only considered the largest in the MENA region but also competing on the global scale with one of the world’s top ten potash producers10, knowing that it is the only Arab country in the production. Jordan’s top export categories include chemicals11 (potassic fertilizers), packaged medicaments, textiles and knit garments, and mineral products (including potash and phosphates)12,13. Since April 2000, Jordan has become a member of the World Trade Organization (WTO)14 in a step towards the trade liberalization process. The country has entered the 1998 Association Agreement (AA) with the European Union (EU), as well as the 1998 Greater Arab Free Trade Agreement (GAFTA). It also provides for the trade liberalization in agriculture accompanied by a precise set out including tariff removals along with monetary, administrative, and quantitative Non-Tariff Barriers to trade (NTBs) quotas (Abedini 2008). In 2001, the country entered into a Free Trade Agreement (FTA) with the United States15. In addition to the United States, the European Union and Jordan established a Free Trade Area (FTA)16 liberalizing two-way trade in goods17, which went into effect in 2002. The kingdom is attempting to further develop trade liberalization policies, in exchange; trade reforms emphasized the importance of opening to the rest of the world and the region, whether bilaterally or otherwise (Kardoosh 2019). All in all, trade liberalization is the path to connecting and integrating the economy with the global system, which contributes to the country’s growth and development (Sachs et al. 1995). Nevertheless, Jordan has been suffering from a trade imbalance, with total annual imports tantamount to more than twice its exports. The issue is partly due to the scarcity of natural recourses, recurring droughts, extreme temperatures, erratic rainfall patterns18, a small manufacturing sector19, and rapid population growth fueled by periodic waves of refugees. As shown in Figure 2, the contribution of exports to GDP started decreasing, where imports of goods and services amounted to 51% of GDP and exports of goods and 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Exports and Imports in USD Year Imports Exports Re-Exports Gross Exports Figure 1. Exports and Imports in Jordan. This graph is generated using the available data through the Jordanian Department of Statistics (DoS) between 1994 and 20217. It is plausible to argue that the Hashemite Kingdom of Jordan, the upper-middle- income country 8 , with a population of 11,148,278 9 , survived the Arab Spring. The country is considered small but indeed not an unimportant country in the Middle East since it has geopolitical importance described as a stabilizing anchor in this context. It is true that the Jordanian economy is one of the smallest in the Middle East, it is poorly endowed with natural fresh water, oil, and other natural resources yet, it has a rich potash industry not only considered the largest in the MENA region but also competing on the global scale with one of the world’s top ten potash producers 10 , knowing that it is the only Arab country in the production. Jordan’s top export categories include chemicals11 (potassic fertilizers), packaged medicaments, textiles and knit garments, and mineral products (including potash and phosphates)12,13. Since April 2000, Jordan has become a member of the World Trade Organization (WTO) 14 in a step towards the trade liberalization process. The country has entered the 1998 Association Agreement (AA) with the European Union (EU), as well as the 1998 Greater Arab Free Trade Agreement (GAFTA). It also provides for the trade liberalization in agriculture accompanied by a precise set out including tariff removals along with monetary, administrative, and quantitative Non-Tariff Barriers to trade (NTBs) quotas (Abedini 2008). In 2001, the country entered into a Free Trade Agreement (FTA) with the United States 15 . In addition to the United States, the European Union and Jordan established a Free Trade Area (FTA) 16 liberalizing two-way trade in goods 17 , which went into effect in 2002. The kingdom is attempting to further develop trade liberalization policies, in exchange; trade reforms emphasized the importance of opening to the rest of the world and the region, whether bilaterally or otherwise (Kardoosh 2019). All in all, trade liberalization is the path to connecting and integrating the economy with the global system, which contributes to the country’s growth and development (Sachs et al. 1995). Nevertheless, Jordan has been suffering from a trade imbalance, with total annual imports tantamount to more than twice its exports. The issue is partly due to the scarcity of natural recourses, recurring droughts, extreme temperatures, erratic rainfall patterns 18 , a small manufacturing sector 19 , and rapid population growth fueled by periodic waves of refugees. As shown in Figure 2, the contribution of exports to GDP started decreasing, where imports of goods and services amounted to 51% of GDP and exports of goods and services 30% of GDP during 2021. Worldwide trade flows decreased significantly in 2020 due to the coronavirus disease (COVID-19). Economies 2023,11, 135 3 of 20 Economies 2023, 11, x FOR PEER REVIEW 4 of 21 comparison, the GLE hypothesis implies that exports are a function of economic growth. The other way round for the “Imports hypotheses”, the ILG hypothesis states that imports promote economic growth, while the GLI hypothesis suggests that economic expansion drives imports. Figure 2. Exports and Imports (% GDP) in Jordan. This graph is generated using the available data through the World Bank between 1994 and 202120. In parallel to previous econometric studies supported by various literature review cases, a holistic approach is important to be followed while studying the four hypotheses from a broader social and economic context. Additionally, interpreting the results shall be examined with caution as interpretation could vary depending on the country/countries studied and the time studied for the case. Therefore, in the literature review, several countries were covered, from the Middle East to Asia, from Europe to Africa, as well as the Americas. The objective of the study endeavors to discover the main elements that have influenced and reshaped Jordan’s exports and imports, and at the same time, understand the relationship between international trade and economic growth in the kingdom. As previously noted, Jordan joined the WTO as a member in 2000. As a result of Jordan’s accession, various structural and legal changes have been implemented. Jordan is facing a trade imbalance where its annual imports exceed its exports by a factor of more than two, causing economic hardship. Given Jordan’s heavy reliance on imports, it is highly important to examine the influence of trade, particularly exports and imports, on the country’s economic development. Therefore, the Jordanian case offers a valuable case for empirical research into the relationship between exports, imports, and economic growth. This paper will conduct an empirical investigation of the ELG, GLE, ILG, and GLI hypotheses using time-series data. The novelty of the presented study shows the first instance of empirical research to explore the purpose and, at the same time, examine the relationships and dynamic causality between economic growth (measured as GDP), exports, and imports focusing on Jordan between 1994 and 2021 using the four hypotheses. Chronology of significant economic and political events that occurred during the mentioned years. Starting from the 1994 peace treaty with Israel, passing by the Liberalization and Privatization for the period 1999–2009, 2003 Jordan’s economy was hit by the Iraqi War, the 2009 Global Financial Crisis 2010 Arab Spring, the 2011 Syrian Civil War, and lately, the COVID-19 economic challenge. The motivation for the research hypothesis stemmed from the disparity in exports and imports growth and the unbalanced rapid growth of imports in Jordan; this paper 0 10 20 30 40 50 60 70 80 90 100 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Exports and Imports as % GDP Years Exports of goods and services (% of GDP) Imports of goods and services (% of GDP) Figure 2. Exports and Imports (% GDP) in Jordan. This graph is generated using the available data through the World Bank between 1994 and 202120. In light of the Jordanian structural alteration strategy and the economic attributes framework, privatization has been an essential key element since mid-1996. Structural reforms have been implemented by the government to a large extent with the assistance of the International Monetary Fund (IMF). The reforms have aimed at fostering growth by stabilizing the economy (International Monetary Fund (IMF) 2004), a success story to be told in this context where macroeconomic policies started to restore the initial stabilization of the Jordanian Dinar based on a peg of the U.S. Dollar. Back then, the policy was endorsed by the Central Bank of Jordan (CBJ) (Mohaddes and Raissi 2011). Regionally speaking, Jordan has transformed its economy into a more open and dynamic system, following the liberalizing of foreign trade, reduction in public debt, and privatizing state-owned enterprises (WTO 2008). The country has taken significant strides to reform not only its economy but also its political and social latitude by increasing the intention towards building a modern economic and political state in parallel with robust growth and prosperity of socioeconomic indicators. Theoretically speaking, stabilizing the exchange rate was targeted to achieve monetary stability to be able to attract both Arab and foreign investment to the country for the process of liberalizing foreign trade and domestic prices. The Jordanian structural reforms strategy has brought in return a structural modification in terms of more Foreign Direct Investment (FDI) and higher export-led growth. Insofar as the Jordanian reform momentum continues and the regional security environment improves, growth should increase further and make a dent in poverty and unemployment levels within the country since unemployment is the core of poverty. Despite the paradox of stagnant real per capita incomes, the economy doubtless benefited from trade, privatization, and other structural reforms (Ramachandran 2004). However, as shown in Figure 2, the contribution of exports and imports as a percentage of the GDP from 1994 to 2021 in Jordan. Throughout the analyzed period, the ratio of imports to GDP has been greater and continuously increasing compared to the ratio of exports to GDP since 1994. However, the ratio of exports to GDP has experienced a slight downward trend during the periods 2011–2013 and 2014–2017. Jordan’s export contribution to GDP reached 56% in 2008, which was the largest contribution ever made during the analyzed time series, although the ratio started decreasing afterward and 46% and less. On the other hand, the imports to GDP ratio reached the value of 94% in 2005. In 2021, the contribution of exports to the Jordanian economy was 30.3%, whereas imports made a contribution of 51.13%. Indeed, the contribution of exports in 2021 (30.3%) was lower than the contribution in 1994 (47.86%). If the current trend persists, the Jordanian foreign trade will rely heavily on imports. For that reason, Jordanian case Economies 2023,11, 135 4 of 20 can be presented as a great example for the empirical analysis of the Export-Led Growth (ELG), Growth-Led Export (GLE), Import-Led Growth (ILG), and Growth-Led Import (GLI) hypotheses. The four hypotheses, namely; ELG, GLE, ILG, and GLI, are considered controversial and indecisive. While there are several competing hypotheses regarding the connection between trade and economic growth, the empirical data supporting or contradicting them is inconsistent and inconclusive. Several studies have yielded either corroborating or contradicting evidence for one or more of these hypotheses. Thus, knowing that the four can offer some insights into the relationship between trade and economic growth in Jordan, the case must be viewed with caution, considering Jordan’s unique economic and social conditions. Moreover, there are several factors that can affect the correlation between economic growth and trade, namely political stability in the region, institutional quality, significant levels of youth unemployment, limited natural resources, and technological advancement. All of these factors can affect, and at the same time, complicate the correlation. Proportionately, Jordan requires a subtle method of formulating policy. Although the hypotheses are considered to be insightful in examining the correlation between economic growth and trade, they cannot be deemed conclusive or universally valid. According to the “Export hypotheses”, the ELG hypothesis, exports promote economic growth. In comparison, the GLE hypothesis implies that exports are a function of economic growth. The other way round for the “Imports hypotheses”, the ILG hypothesis states that imports promote economic growth, while the GLI hypothesis suggests that economic expansion drives imports. In parallel to previous econometric studies supported by various literature review cases, a holistic approach is important to be followed while studying the four hypotheses from a broader social and economic context. Additionally, interpreting the results shall be examined with caution as interpretation could vary depending on the country/countries studied and the time studied for the case. Therefore, in the literature review, several countries were covered, from the Middle East to Asia, from Europe to Africa, as well as the Americas. The objective of the study endeavors to discover the main elements that have influenced and reshaped Jordan’s exports and imports, and at the same time, understand the relationship between international trade and economic growth in the kingdom. As previously noted, Jordan joined the WTO as a member in 2000. As a result of Jordan’s accession, various structural and legal changes have been implemented. Jordan is facing a trade imbalance where its annual imports exceed its exports by a factor of more than two, causing economic hardship. Given Jordan’s heavy reliance on imports, it is highly important to examine the influence of trade, particularly exports and imports, on the country’s economic development. Therefore, the Jordanian case offers a valuable case for empirical research into the relationship between exports, imports, and economic growth. This paper will conduct an empirical investigation of the ELG, GLE, ILG, and GLI hypotheses using time-series data. The novelty of the presented study shows the first instance of empirical research to explore the purpose and, at the same time, examine the relationships and dynamic causality between economic growth (measured as GDP), exports, and imports focusing on Jordan between 1994 and 2021 using the four hypotheses. Chronology of significant economic and political events that occurred during the mentioned years. Starting from the 1994 peace treaty with Israel, passing by the Liberalization and Privatization for the period 1999–2009, 2003 Jordan’s economy was hit by the Iraqi War, the 2009 Global Financial Crisis 2010 Arab Spring, the 2011 Syrian Civil War, and lately, the COVID-19 economic challenge. The motivation for the research hypothesis stemmed from the disparity in exports and imports growth and the unbalanced rapid growth of imports in Jordan; this paper investigates the causality among GDP, merchandise exports, merchandise imports, and gross capital formation were examined using the Dickey–Fuller unit root tests, the Phillips–Perron unit root test, and the Johansen’s trace tests for cointegration. The dynamic properties of Economies 2023,11, 135 5 of 20 the VAR(1) were summarized using Granger causality tests and impulse response functions. The Johansen cointegration tests suggested that the series were not cointegrated, and hence there were no long-term relationships among the time series. It appeared that in the short-run, both GDP and gross capital formation Grangerly caused merchandise exports. Overall, the Jordanian government has put into place a number of policies to increase exports and decrease imports, including tax incentives for export-oriented businesses and higher tariffs on some imported goods. To achieve a sustainable trade balance, however, the nation still faces significant obstacles. This paper contributes to the existing literature in two primary ways; this study focuses on an upper-middle-income country experiencing several economic growth activities, and from a geopolitical perspective, the country has built up a reputation as an anchor of stability in the Middle East; the center of what so-called a volatile world. Moreover, the data examined in the analyses used tangible commodities referred to as merchandise exports (X) and merchandise imports (M) imports rather than using the total imports of goods and services in the analysis. The rest of the paper is structured as follows. Section 2offers a survey of the related economic literature, while Section 3outlines the data and the empirical research methodology utilized. Finally, Section 4provides concluding remarks and test results. 2. Literature Review The link between economic growth and trade has been debated extensively for more than two centuries; the relationship has been investigated using both frameworks, theoretical and empirical. However, controversy still persists regarding the actual effects. The nexus between trade and economic growth has often been supported by the premise that an improvement in economic growth in return can be caused by an increase in trade liberalization policies in the globalized modern world (Stallings 2001;Syal 2007;International Monetary Fund (IMF) 2001;Edwards 1993). Trade liberalization has been interpreted in a wide range of ways in the previous economic literature. It has also been argued by the World Bank that “countries openness to international trade have created opportunities to innovate, increase growth potential of the economy, reduce poverty, create jobs, and improve productivity locally and globally through out economic integration and Global Value Chains (GVCs) 21 ”. The economic effects of trade liberalization have often been studied in the literature, and there are varied results and arguments (Ju et al. 2010;Winters et al. 2004). Previous research has documented that countries that are more open to the remainder of the world grow in a faster rhythm than closed economies (Edwards 1998). It was argued that economic growth could be generated by the reallocation (Melitz 2003) of the available/existing resources and not exclusively via an increase in the aggregate levels of capital and labor; let it be a shift towards the higher productivity export sector from the efficient non-export sector (Islam et al. 2012;Rani and Kumar 2018). Moreover, some evidence indicated that financial openness is frequently linked to greater economic growth (Bekaert et al. 2011;Fratzscher and Bussiere 2004;Quinn et al. 2011). In a similar way, there is a correlation between economic expansion and trade; increased foreign currency reserves, better utilization due to resource allocation, and increased efficiency due to the domestic output increase; by way of illustration, trade promotes economic growth (Awokuse 2007). It is not new and previously argued that exports play a role in economic growth; going back to the father of economics, Adam Smith, with his classical economic theories, as well as David Ricardo in 1817, with his theories in comparative advantage and international trade playing an important role in economic growth. The neoclassical approach identifies the importance of competitive advantages in international trade; based on a market base view. Countries tend to maximize their welfare through certain economic activities, which are considered to be the most efficient regarding both resource and factors of production during the existence of economic scarcity; it is more likely from a behavioral economic approach (Abu Shihab et al. 2014). The Export-Led Growth (ELG) hypothesis Economies 2023,11, 135 6 of 20 postulates that exports are the key determinant of overall economic growth (Feder 1983; Medina-Smith 2001). One of the main supportive arguments for this hypothesis is the dynamic spillover effect on the economy; in other words, export growth may influence the Total Factor Productivity (TFP) 22 . Based on the production function framework, empirical studies have included exports due to the spillover effect. According to Coe and Helpman (1995), investing in a country’s R&D affects the TFP of its trade partners. In a nutshell, it is called “learning by doing”, or to be more precise, it is considered “learning by exporting” (Tyler 1981;Lucas 1988); in all countries, exporters are more productive than non-exporters (Clerides et al. 1998). From an intercountry cross-section empirical analysis implemented for 55 developing countries with middle-income during the period 1960–1977, a relationship was found between export expansion and economic growth. Furthermore, there was a considerable positive association after conducting the bivariate tests between economic expansion and other factors/variables, including gross exports, manufacturing exports, investment, and manufacturing output growth (Tyler 1981). A production function model 23 was also specified and estimated with the cross-sectional data. Results have shown that in explaining intercountry variance in GDP growth rates, all the following factors were important, starting with export performance all the way to capital formation. In conclusion, an increase in manufacturing exports leads as a result to technological advancements, which in return will increase economic development; let it be the growth in the size of the workforce/labor and/or the growth in productivity. Exports have been seen as the new paradigm (Debbarmaa et al. 2022). In development economics literature, a major focus has been drawn toward the role of trade policies in increasing both efficiency and growth. However, this varies significantly across countries. A study has analyzed the data on sectoral TFP of four different countries, namely, Japan, Korea, Turkey, and Yugoslavia. It demonstrated the effects of various development strategies on the TFP growth in the manufacturing industries by examining the influence of different strategies, particularly export expansion and import substitution trade policies. The results indicated that TFP growth is hampered by imports growth, keeping in mind that there is a link between industrial productivity and trade policies performance. On the other hand, export growth elevates TFP by increasing the axiom functionality and economies of scale (Nishimizu and Robinson 1984). Moreover, the thriving exports sector benefits the country in several ways; the role of technological innovation as a source of economic growth can lead to higher productivity, increased capacity utilization and decreased costs per unit, efficient resource allocation, and economies of scale (Helpman and Krugman 1987). If this trend continues with thriving exports, in this context, inclusive growth can be translated by creating employment opportunities (Hausmann et al. 2019;Warred 2014). In general, developing countries that have participated in international trade tend to make rapid progress in poverty alleviation and job creation (UNDP 2013). The empirical analysis for the following hypotheses: The Export-Led Growth (ELG), Growth-Led Export (GLE), Import-Led Growth (ILG), and Growth-Led Import (GLI), are supported by literature review on trade and economic growth, which creates verifiable evidence using scientific methods for interpretation. To start with the first hypothesis, the ELG, also expressed as exports’ role in economic growth in the majority of empirical research. The ELG hypothesis is described as a development strategy that is concentrated on foreign exports and aims at the same time to foster productive capacity, which is lined up with economic growth (Medina-Smith 2001). This hypothesis involves promoting exports and acquiring foreign currency reserves by adopting certain policies; with this approach, importing high-tech goods and services can be in favor of economic growth. Exports are considered a tool for the long-run to economies of scale; exports drive economic growth in the domestic market through the use of more technology and skilled labor (Bhagwati 1988, 1989). This process leads to improved efficiency and productivity in the economy. Noteworthy that ELG economic research is not exclusively limited to developing economies; it is rather for all countries across the continents. This part is divided into Economies 2023,11, 135 7 of 20 seven categories, starting with developing countries: Balassa (1978) studied 11 developing countries that have an industrial base, Kavoussi (1984) examined 73 developing countries where export growth is correlated with better economic performance, and that has a favorable impact on total factor productivity. Love and Chandra (2005) paper tested the ELG hypothesis for South Asia in a sample consisting of the large country India, as well as medium to small countries; Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and the Maldives, however; the findings of this study were mixed. Another study tested five different countries, namely India, Pakistan, the Philippines, Malaysia, and Thailand; empirical results have shown that exports have a profoundly positive effect on economic growth (Vohra 2001). The following studies have been conducted on developed countries; Awokuse (2006) studied the connection between Japan’s real exports and GDP growth; output was bidirectional. Kónya (2006) investigated 24 OECD 24 countries; results have shown three different interpretations; a two-way correlation between growth and exports, one-way causality from exports to GDP, and one-way causality from GDP to exports. Jin and Yu (1996) tested the ELG hypothesis for the US economy; results indicated that there are no significant causal impacts between exports and output. Shan and Sun (1999) tested the US economy using quarterly time series data using the developed method “Toda-Yamamoto (TY) Causality”; the Granger no-causality procedure and results have shown a two-way Granger causality between output and exports. As for the Gulf region, Al-Yousif (1997) paper investigated four Arab Gulf countries, namely, Saudi Arabia, Kuwait, UAE, and Oman; the data estimates have indicated a significant positive correlation between economic growth and exports. Other studies were dedicated to Africa; (Ahmad and Kwan 1991;Foster 2006). CEECs case studied by Hagemejer and Mu´ck (2019). South America, including Mexico (Siliverstovs and Herzer 2006;Arteaga et al. 2020;Thornton 1996). Lastly, newly industrialized Asian (Ghatak et al. 1997;Kwan et al. 1999;Dhawan and Biswal 1999;Khalafalla and Webb 2001;Awokuse 2005;Siliverstovs and Herzer 2006). Correspondingly, the relationship between trade and economic expansion is still being studied and is considered to be an ongoing research topic (Were 2015). A number of studies documented weak, no, or mixed support for the ELG hypothesis. Starting with (Jung and Marshall 1985), the Granger Causality test was used in this study to examine the relationship between economic growth and exports in 37 developing countries; results have shown uncertainty on the validity of the hypothesis and, therefore, weak support for the hypothesis. Dreger and Herzer (2013) examined 45 developing countries in the long-run and the short-run; results have shown that there is no significant association; therefore, this has reflected weak evidence for the ELG hypothesis. Darrat (1986) tested five countries, namely, Hong Kong, South Korea, Singapore, and Taiwan. Empirical results did not support the ELG hypothesis based on the Granger Causality test. Comparably, Oxley (1993) utilized data on Portugal, and the ELG was rejected, giving support to the reverse causality; therefore, no supportive evidence was found. Khemka et al. (2018) examined whether the ELG hypothesis is valid for India, and the results found no support. Mazumdar (2001) found evidence in developing countries and argued that imported machinery leads to higher growth. Despite the previous arguments, many researchers have discovered evidence that supports the ELG hypothesis, linking exports to economic growth. For example, Balassa (1978) found a supportive argument for the ELG hypothesis. Fajana (1979) analyzed the impact of trade on Nigeria’s economic growth, and the results provided empirical support for the ELG hypothesis; also, it concluded that exports play an important role in economic growth. Onafowora et al. (1996) investigated using data from 12 Sub-Saharan African (SSA) countries, results suggested that it is possible to stimulate economic growth, and it supports the ELG hypothesis. Al-Yousif (1997) investigated the relationship between exports and economic growth for four Arab Gulf countries, namely, Saudi Arabia, Kuwait, UAE, and Oman; results found a significant positive association. Islam (1998) examined the Economies 2023,11, 135 8 of 20 relationship between exports and growth over a-15 year period in 15 Asian countries, results found consistent with the ELG hypothesis, and cointegration existed between exports and growth in five countries out of fifteen. Bahmani-Oskooee and Oyolola (2007) examined the data using 44 developing countries, and the results found evidence that supports the ELG hypothesis in 60% of the countries. Narayan et al. (2007) the authors examined the ELG hypothesis for Fiji and Papua New Guinea, and the discovered evidence supported the ELG in the long-run for the case of Fiji, while for Papua New Guinea, the was evidence only in the short-run for ELG. Rani and Kumar (2018) investigated the case of BRICS 25 ; results indicated a long-run relationship among the competing variables, namely, exports, imports, gross capital formation, and economic growth. Hagemejer and Mu´ck (2019) studied the case of CEECs; results documented that exports substantially boosted economic development. Arteaga et al. (2020) discovered that an increase in exports to China boosted the economic expansion of South American nations. Another study examined the nexus between export expansion and economic development in China from 1979 to 2001 using the error correction model; results showed that the variables had a bidirectional causal relationship (Mah 2005). Hye and Boubaker (2011) investigated ELG and ILG for the period 1960–2008 in Tunisia using the ARDL technique, outcomes indicated that both ELG and ILG are valid and at the same time, a bidirectional association existed between both exports and imports. Awokuse (2007) examined the effects of both export and import expansion on economic growth for three transition economies; Bulgaria, the Czech Republic, and Poland. Empirical results indicated that both ELG and GLE are valid for the case of Bulgaria, ELG and ILG hypotheses were valid for the case of the Czech Republic, and the ILG hypothesis was valid for the case of Poland; overall, it has been proved that international trade promotes economic expansion. However, another study by the same author the next year, Awokuse (2008), examined the nexus between economic growth and trade in 3 Latin American countries with hand on both exports and imports. Empirical findings indicated mixed results for the ELG, ILG, and GLE hypotheses. South Korea and Japan cases were taken into account in Zang and Baimbridge (2012) research; the authors tested using the VAR model the causality between exports, imports, and economic growth. Empirical evidence indicated that for both East Asian countries, a bidirectional causality existed between economic expansion and imports, and the ELG hypothesis was valid for the case of Japan; however, in South Korea, economic growth had a negative impact on export growth. Mahadevan and Suardi (2008) examined the uncertainty of both ILG and ELG hypotheses for the case of Japan and the Four Asian Tigers; results have found evidence for the ILG hypothesis in Japan, no evidence of a cointegrating causal link between Korea’s economic growth and trade. Furthermore, Hong Kong’s economic growth supported both ELG and ILG hypotheses. Panta et al. (2022) examined the case of Nepal to understand the causal relationship between economic growth, exports, and imports. Their research indicated that in the long and short-run, there is no relationship supporting both ELG and GLE hypotheses, whereas evidences was found supporting ILG in the short-run and GLI in the long-run. Hye et al. (2013) examined ELG, ILG, GLE, and GLI hypotheses in six South Asian countries, results have shown that the ELG hypothesis was irrelevant to all countries except the case of Pakistan, whereas the ILG hypothesis was relevant to all six South Asian countries. The GLE hypothesis was relevant to all nations, barring Bangladesh and Nepal. The GLI model and export–import model are pertinent to all six countries. Ahmad and Harnhirun (1995) examined the ASEAN countries to investigate the nexus between economic growth and exports between 1967 and 1988; results found evidence supporting the GLE hypothesis for Singapore, Malaysia, the Philippines, and Indonesia. Kristjanpoller and Olson (2014) ELG, GLE, and ILG hypotheses were examined using data from Latin American nations, empirical results were mixed, and in conclusion, a negative correlation existed between both impacts of exports and imports on GDP growth, to put it differently, and theoretically speaking, ILG and ELG hypotheses do not coexist. Economies 2023,11, 135 15 of 20 Author Contributions: Resources, F.N.; Validation, N.S.; Writing—review & editing, R.I. All authors have read and agreed to the published version of the manuscript. Funding: This research received no external funding. Informed Consent Statement: Not applicable. Data Availability Statement: The authors primarily used the World Development Indicators (WDI) data which is publicly available through the World Bank as well as the Jordanian Department of Statistics data. Conflicts of Interest: The authors declare no conflict of interest. Appendix A Durbin–Watson test statistics were used to test the null hypothesis that the residuals were uncorrelated (Brooks 2014). The Durbin–Watson test statistics were around 2 ( Table A1 ), indicating that the residuals for the VAR were uncorrelated. The Jarque– Bera normality test statistics (Jarque and Bera 1980) and quantile-quantile (QQ) plots (Wilk and Gnanadesikan 1968) were used to determine if the residuals were normally distributed. The results of the Jarque–Bera normality tests suggested that the residuals may be normally distributed for the models of imports and gross capital formation (p> 0.05) but may not be normally distributed for the models of GDP and exports (p< 0.05) ( Table A1 ). However, the QQ plots (Figure A1) indicated that the residuals might be normally distributed as most of the data points in the QQ plots were close to the 45-degree straight line. Thus, as Jarque–Bera normality tests may be conservative, we concluded that the residuals were normally distributed based on the results of the QQ plots. The Fstatistics and their p-values for autoregressive conditional heteroskedasticity (ARCH), a method that explicitly models the change in variance over time in a time series, were used to test the null hypothesis that the residuals have equal covariances (Engle 2001). As the p-values of the F statistics for autoregressive conditional heteroskedasticity were greater than 0.05 (Table A1), we concluded that the residuals have equal covariances. Table A1. Univariate model white noise diagnostics. Durbin– Watson Jarque–Bera Normality Test ARCH Model χ2pFp ∆Gt1.8519 6.07 0.0481 0.10 0.7507 ∆Xt1.9159 9.00 0.0111 0.96 0.3326 ∆Mt1.8759 1.69 0.4287 0.02 0.8920 ∆Ct1.9940 3.07 0.2157 0.39 0.5367 Economies 2023, 11, x FOR PEER REVIEW 16 of 21 Durbin–Watson test statistics were used to test the null hypothesis that the residuals were uncorrelated (Brooks 2014). The Durbin–Watson test statistics were around 2 (Table A1), indicating that the residuals for the VAR were uncorrelated. The Jarque–Bera normality test statistics (Jarque and Bera 1980) and quantile-quantile (QQ) plots (Wilk and Gnanadesikan 1968) were used to determine if the residuals were normally distributed. The results of the Jarque–Bera normality tests suggested that the residuals may be normally distributed for the models of imports and gross capital formation (p > 0.05) but may not be normally distributed for the models of GDP and exports (p < 0.05) (Table A1). However, the QQ plots (Figure A1) indicated that the residuals might be normally distributed as most of the data points in the QQ plots were close to the 45-degree straight line. Thus, as Jarque–Bera normality tests may be conservative, we concluded that the residuals were normally distributed based on the results of the QQ plots. The F statistics and their p-values for autoregressive conditional heteroskedasticity (ARCH), a method that explicitly models the change in variance over time in a time series, were used to test the null hypothesis that the residuals have equal covariances (Engle 2001). As the p-values of the F statistics for autoregressive conditional heteroskedasticity were greater than 0.05 (Table A1), we concluded that the residuals have equal covariances. Table A1. Univariate model white noise diagnostics. Durbin– Watson Jarque–Bera Normality Test ARCH Model χ2 p F p Δ𝐺 1.8519 6.07 0.0481 0.10 0.7507 Δ𝑋 1.9159 9.00 0.0111 0.96 0.3326 Δ𝑀 1.8759 1.69 0.4287 0.02 0.8920 Δ𝐶 1.9940 3.07 0.2157 0.39 0.5367 Figure A1. QQ plots for models for GDP, merchandise exports, merchandise imports, and gross capital formation (from left to right). Notes 1. More Trade for More Jobs Identifying the Employment Potential of Jordan’s Exports, International Labour Organization, Amman Office, Jordan, 2019. 2. Department of Statistics Interactive Database: External Trade Functions 1994–2021, by Kind of Trade, Unit, Commodity Groups and Time. Detailed information is also available in Jordan’s Trade and Investment Information System (JTIIS), which is hosted on the DOS website. 3. Gross Exports is the sum or Exports and Re-exports. The data are compiled in broad conformity with international practice and in accordance with definitions recommended by the United Nations for foreign trade statistics, specifically in accordance with the International Merchandise Trade Statistics. 4. (6.643 − 5.639)/5.639 × 100. Figure A1. QQ plots for models for GDP, merchandise exports, merchandise imports, and gross capital formation (from left to right). Economies 2023,11, 135 16 of 20 Notes 1 More Trade for More Jobs Identifying the Employment Potential of Jordan’s Exports, International Labour Organization, Amman Office, Jordan, 2019. 2 Department of Statistics Interactive Database: External Trade Functions 1994–2021, by Kind of Trade, Unit, Commodity Groups and Time. Detailed information is also available in Jordan’s Trade and Investment Information System (JTIIS), which is hosted on the DOS website. 3 Gross Exports is the sum or Exports and Re-exports. The data are compiled in broad conformity with international practice and in accordance with definitions recommended by the United Nations for foreign trade statistics, specifically in accordance with the International Merchandise Trade Statistics. 4(6.643 −5.639)/5.639 ×100. 5 A Roadmap for Investment Promotion and Export Diversification: The Case of Jordan. Center for International Development at Harvard University (CID) Faculty—Working Paper Series: 374 (Hausmann et al. 2019). 6 Report by Mojahed Elsagheer from the Jordanian Ministry of Planning and International Cooperation, “Energy Situation in Jordan”, July 2013. 7All exports and imports values are in USD. 8 World Bank list of economies, URL: https://data.worldbank.org/?locations=JO-XT | World Food Programme (WFP) Jordan Country Brief Published in May 2022 (accessed on 16 January 2023). 9Population, total—Jordan. 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