The Impact of Trade Liberalization and Financial Development on Economic Growth: Jordan Case Study

Khaled M. Al-Swai'e

Abstract


This study aims to examine the short term and long term between trade liberalization and financial development (domestic credit and private credit and money supply) and economic growth in Jordan using quarterly data over the period 1992-2011. This analysis is based on the bound testing approach or the autoregressive distributed lag (ARDL) given by Pesaran et al. (2001). The empirical results revealed the existence of long-term relationship between the growth of real GDP, trade liberalization and financial development, and showed a negative effect of trade openness on economic growth in the long term and short term. This result highlights that trade liberalization does not promote economic growth, as well as the liberalization of the financial sector has a negative effect on the growth of GDP as liberalizing trade in the long term.

Keywords


Financial development, trade openness, economic growth, bound testing approach, error correction model, Jordan.

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