Salem Mohammad
The main objective of this study was to examine the short and long-run relationships between macroeconomic variables such as : gross domestic product, foreign direct investment, money supply, consumer price index, interest payment on external debt and fuel import and Jordan’s financial development represented by Amman Stock Exchange (ASE), Conventional Banking System (CBS) and Islamic Banking System (IBS). Moreover; to examine the directional causality between Jordanian economy and financial development. The annual time series data for the period from 1978 to 2013 is used to obtain these objectives. The Granger Causality Test revealed a unidirectional causality relationship between economic growth and Jordan’s financial development. Also, the economic growth appear to lead the ASE while, CBS and IBS appear to lead the economic growth. These results are in support of the theories and the hypotheses of this study which postulates that the financial development were positively affected by GDP, FDI, MS2 and F1 and negatively affected by CPI and IP is the short and long-run analysis. Further, the macroeconomic variables appeared to strongly predict Jordanian financial development performance. Jordan’s government and policy-makers should encourage the investors to establish more Islamic banks, launch awareness campaigns and financial market’s programs, and continue governing the monetary policy in the right direction to combat inflation. Future studies may focus on the influence of other variables such as: the privatisation programs, total debt, public and private domestic savings and economic openness on Jordan’s financial development.
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