THE IMPACT OF DEFICIT FINANCING ON ECONOMIC STABILITY: THE CASE OF JORDAN

Hamad A. Kasasbeh and Marwan Alzoub
Additional contact information
Hamad A. Kasasbeh: Al-Zaytoonah Univesity of Jordan
Marwan Alzoub: Al-Zaytoonah Univesity of Jordan

Ekonomski pregled, 2019, vol. 70, issue 5, 706-722

Abstract: This study examines the effect of defi cit fi nancing on economic stability in Jordan during the period 2005-2017, using quarterly data by employing the Vector Error Correction Model (VECM) after seasonally adjusting the variables. This paper is unique as it is the fi rst of its kind that tackles the issue of stability in Jordan. It provides empirical evidence that external borrowing (EBDT) and domestic bank fi nancing (BANK) negatively affect economic stability in Jordan. The bank effect is due to crowding out the private sector. External borrowing negative impact is driven by the current high level of outstanding public debt, 98 percent of GDP. Public debt is mainly channeled to fi nance current expenditures at the expense of capital expenditures, which has a minimal impact on growth. Interest rate (REPO) effect is in line with the fi nance theory as higher rates lead to lower growth. Nonbank fi nancing (NonBank), although not statistically signifi cant, exhibits the right sign as it has a positive effect. Future research may extend this work by including other macroeconomic variables such as current account defi cit, money supply and direct foreign investment.

Keywords: Budget Deficit; Crowding out; Public Expenditure; Vector Error Correction Model (search for similar items in EconPapers)
JEL-codes: E62 E63 H62 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.32910/ep.70.5.2 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hde:epregl:v:70:y:2019:i:5:p:706-722

Ordering information: This journal article can be ordered from
Ekonomski pregled, Hrvatsko društvo ekonomista, Heinzelova 4a, 10000 Zagreb, Croatia
http://www.hde.hr/pregled_en.aspx

Access Statistics for this article

Ekonomski pregled is currently edited by Josip Tica

More articles in Ekonomski pregled from Hrvatsko društvo ekonomista (Croatian Society of Economists) Contact information at EDIRC.
Bibliographic data for series maintained by Josip Tica ().