Economic Growth and Foreign Direct Investment in the Context of Financial Development: Evidence from Jordan

Abstract

Purpose: The objective of this study is to analyze the relationship that exists among economic growth and FDI in Jordan empirically, and the role of financial development in shaping this relationship. Design/Methodology/Approach: This research used the process of deductive reasoning approach, associated with quantitative research, supported by empiricism and positivism as philosophical positions. Growth Indicators, FDI, financial development and other control variables data that covered the period between 1993-2018 were used. The analysis method of Johansen’s co-integration will be applied to figure out if the relationship between economic growth, FDI and financial development exist. Findings: The Johansen’s co-integration has found out that there is a long-term relationship between FDI, financial development and economic growth. Also, interaction between stock market financial development indicators and FDI was statistically evident. Practical Implications: Our research contributes to the literature by examining if FDI is growth inducing through networks of financial development, and other factors that could drive growth alongside with FDI. Research shows professionals that a well-developed financial market will improve FDI's spillover impact on economic growth. A well-developed stock market will speed up capital accumulation activities and output growth by providing sufficient liquidity services that improve linkages between domestic and foreign investors. Originality/Value: The novelty of the research is to determine the correlation between FDI and Economic growth in Jordan which should be accounted in the long-term development of all developing countries. At the same time, this study is a step forward towards analysing the relationship that exists among economic growth and FDI in Jordan.