TRADE LIBERALIZATION, PROFITABILITY AND WAGES IN THE MANUFACTURING SECTOR OF JORDAN (1976-99):

Ibrahim SAIF (University of Jordan)

It has been long believed that intensified international competition forces domestic firms to behave more competitively. Domestic industries, which may have reaped oligopoly profits in a protected domestic market, are forced to behave more competitively. This phenomenon is frequently claimed to be especially relevant in developing countries where the protected domestic market often support only few firms. According to the classical views, prices in the competitive markets depend on supply and demand in the short run. In markets that are not governed by competition prices depend on cost in the short run and on demand and supply in the long run.

It is commonly assumed that the performance of business enterprises is strongly influenced by the structure of the markets in which they operate. The liberalization of foreign trade is expected to alter market structure and hence performance. The theory of firms distinguishes different type of market structure (monopoly, oligopoly, perfect competition) and deduces the ways in which firms will behave and perform within the constraints of these different structures.

Trade liberalization, amongst other liberalization measures in Jordan, since 1989 , are expected to contribute in creating a more competitive environment. This, however, might not be true for the whole sub-sectors in the manufacturing sector which are not characterized by their oligopolistic or monopolistic behavior before liberalization. The aim of the study is to determine how changes in trade regime over the last decade have impacted prices and profitability in the manufacturing sector in Jordan.