Short-Run and Long-Run Determinants of Bilateral Trade Between Saudi Arabia and Jordan: An ARDL Approach

This study examines the short-run dynamics and long-run determinants of bilateral trade between Saudi Arabia (KSA) and Jordan during the period of 1995–2024 using the autoregressive distributed lag (ARDL) bounds testing approach. Employing a country-pair time series framework, the analysis examines how economic growth, foreign direct investment (FDI), inflation differentials, and crude oil prices affect trade volume between the two countries over time. The ARDL bound test confirms the presence of long run cointegration among the variables. The Long-run results suggest that crude oil prices, inflation differential, and FDI exert positive and statistically significant effects on bilateral trade, while Saudi economic growth and FDI show negative long-run effects, suggesting that Saudi’s economy structural characteristic and domestic absorption may decrease the demand for Jordanian’s products in the long-run. The short-run results reveal a negative and statistically significant error-correction term, confirming convergence toward long-run equilibrium with approximately 32.16% of deviations corrected each year, implying a moderate speed of adjustment following economic shocks. In the short-run, economic growth, FDI, Inflations differentials, and oil prices exert significant but mixed effect on trade volume, with oil prices emerging as the most influential determinant. Several variables displayed lagged responses due to adjustment costs, production constraints, and contractual rigidities between the two countries. Overall, the findings contribute new time-series evidence on the macroeconomic drivers of bilateral trade between an oil-exporting economy such as Saudi Arabia and a neighboring non-oil-exporting partner like Jordan, offering policy insights for strengthening trade integration and economic cooperation.