Foreign Reserves Under Chronic Trade Deficit in Developing Context, an ARDL Approach: Evidence from Jordan

This paper investigates the relationship between balance of trade and Jor-dan's foreign reserves. Yearly data spanning the period 1976-2019 from World Bank statistics and Autoregressive Distributed Lag (ARDL) model are employed for analysis. Empirical findings suggest that improving the balance of trade has a long-term beneficial influence on foreign reserves, implying that increasing exports or reducing imports helps foreign reserves. Other fac-tors (FDI, aid, and remittances) increase the stock of foreign reserves, whereas debt servicing reduces the stock of reserves. The error correction term is negative in sign and statistically significant, confirming a log-run equi-librium relationship among our variables, and 30 percent of disequilibria is adjusted annually; a relatively fast rate of adjustment indicating that Jordan's economy will reach equilibrium in its stock of foreign reserves in less than four years. Government policies should place a greater emphasis on support -ing import substitution and export promotion methods, although additional study is needed on multiple fronts. Comparing the response of foreign re-serves to trade balance improvements in the case of chronic deficits against improvements in case of trade balance surplus is particularly interesting.