Economic Growth and Financial Development in Jordan: An ARDL Bounds Testing Approach

Al-Abdul Razag Bashier

Journal of Empirical Economics, 2015, vol. 4, issue 5, 270-284

Abstract: The objective of the present paper is to investigate the impact of financial development along with some selected macroeconomic variables on economic growth in Jordan using annual data covering the period from 1976 to 2013. The research methodology employs the Autoregressive Distributed Lagged (ARDL) Model (Bonding test approach to cointegration) to estimate the relationships among variables. The estimation results of the ARDL model revealed that the said variables are cointegrated and there is a long-run equilibrium relationship among variables, and hence, there is a long-run form of causal relationship. The long-run estimation results disclosed a significant negative relationship between economic growth and financial development in Jordan. Moreover, the negative and significant one lagged period error correction term indicates that the causal direction runs from financial development indicator to economic growth. The results provide support for the finance-led growth hypothesis in Jordan. Moreover, trade openness and government variables have the expected positive impacts on economic growth, while inflation (CPI) variable was positive but insignificant.

Keywords: Economic Growth; Financial Development; ARDL; Causality; Jordan (search for similar items in EconPapers)
Date: 2015
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