The Impact of Foreign Direct Investment on Economic Growth in Jordanan Analytical Study of The Period (1995-2012)

Yaser A Arabyat

Abstract


The aim of this study is to identify the importance of foreign direct investment in Jordan, as well as to measure its impact on economic growth in Jordan. The study used a vector error correction model (VECM). The study concluded that the error limit (CointEq1) helps to explain the changes in per capita GDP growth rate, and refers to the presence of long-term causal relationship. The results proved the existence of long-term equilibrium relationship between the growth of per capita GDP and the rest of the study variables rate. To study the relationship in the short term between the variables and determine the impact of each variable alone was used Variance Decomposition and Impulse Response Function. The Results of the study shows that the growth in foreign direct investments have a positive impact on the rate of growth in per capita GDP, which amounted to the estimated value of this effect towards (2.25) percentage points. It is noted that this percentage increases in subsequent years until it reaches about (28%) in the tenth year. The changes in the growth of per capita GDP rate explain about (6.9%) of the prediction error in foreign direct investment in the first year and these percentages increase in subsequent years until it reaches about 24% in the tenth year. This supports the results of causality test which shows a bi-directional relationship between the variables.
The study recommended the encouragement of the flow of foreign investment because it would contribute to the economic growth in the Jordan, through the study of the obstacles that limit the flow of foreign investment. A commitment to clear and long-term policy on the promotion of foreign investment would help to avoid large fluctuations in foreign and Arab investments in Jordan during the previous period. In addition, more work is needed to clarify the mechanisms and investment opportunities in Jordan through holding seminars and international conferences, and the establishment of branch offices of the Jordan to encourage investment from countries with major international companies

Keywords


foreign direct investment inflows, the average per capita GDP, economic openness, human capital, and inflation.

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