WSEAS Transactions on Business and Economics
Print ISSN: 1109-9526, E-ISSN: 2224-2899
Volume 21, 2024
Jordan’s Current Account Deficit Sustainability
Author:
Abstract: Objective: This study seeks to assess the sustainability of Jordan’s current account deficit using annual data from 1990 to 2020, while also addressing policy implications to ensure its sustainability in the Jordanian economy. Design/Methodology/Approach: The sustainability dynamics of the current account deficit are analyzed through Husted’s intertemporal budget constraint approach. With the Johansen cointegration test, Empirical research on long-term dynamics is conducted. Utilizing the Error Correction Model (ECM), the conventional economic examination is additionally broadened to disclose short-term dynamics. Results: According to the Johansen cointegration analysis’s findings, Jordan’s current account deficit is likely to be sustainably large as long as income and expenditures are cointegrated with coefficients below 1. The VEC supports the long-term study’s findings, this demonstrates the yearly 99.7% correction for long-term equilibrium aberrations. Research Limitations/Implications: Unlike Husted’s intertemporal budget constraint approach, which examines the equilibrium between current account (CA) revenues and expenditures to gauge the viability of the trade balance (TB), the sustainability of the deficit hinges on the type of capital inflows utilized to fund it. Therefore, based on the Husted model, it is important to analyze the implications of Jordan’s current account deficit sustainability. Originality/Value: Numerous empirical research looks into current account sustainability because external imbalances make it difficult for emerging nations to fully integrate into the global economy. Most of these studies emphasize the long-term development of CA deficits. In contrast to past research, this work additionally examines the current account balance’s short-term volatility. As a result, the study’s novelty lies in its analysis of the dynamics of short- and long-term sustainability of the current account.
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Keywords: Current account, Nexus export-import, Intertemporal budget constraint approach, Vector error correction model, Unit root tests, Log-run, Jordan
Pages: 2110-2115
DOI: 10.37394/23207.2024.21.173