Evaluating the Impact of Domestic Savings on Jordan’s Economic Growth

Abstract

The interrelationship between the saving behavior of individuals in any economy and the country's economic growth has been a major focus of researchers and economists. Therefore, this current research is further highlighting the relationship by evaluating the impact of the saving behavior of individuals in Jordan on the growth of the Jordanian economy. Thereby, through using a quantitative research methodology, the current study concentrated on employing a set of statistical tests such as the Johansson co-integration test, the granger-causality test, and the augmented dickey fuller “ADF” test, as well as the regression analysis for the aim of finding out the impact of domestic savings on the growth of Jordanian economy. As a result, findings from this current study as well as the evaluation of the relationship indicated that the savings behavior of individuals in Jordan has a significant positive influence on the economic growth of Jordan. The findings indicate that savings stimulate production, investment, and employment, ultimately leading to the country's economic growth. Results from the autoregressive distributed lag indicated that the two variables not only indicate a strong positive and significant relationship with each other in the long run; while it is revealed to be significant and positive in the short term. The results indicated that the domestic savings (estimated through the gross domestic savings of the country) have a significant positive impact on the economic growth (measured through the gross domestic product) of the country. Moreover, it is found that GDS not only significantly influences the gross domestic product in the long run but it also significantly positively influences the gross domestic product in the short run as well. Relying on the above results, it is concluded that enhanced domestic savings will contribute significantly to economic growth because such capital accumulation will increase investments. Additionally, the findings indicated that the increase in the level of domestic savings causes an increase in the economic growth of the country. However, although the level of contribution of GDS to GDP is already quite significant i.e. 0.635%, the Jordanian government must focus on introducing policies in the economy that should promote savings among the public. Moreover, this study also indicates that economies having enhanced savings rates can attract more FDI which significantly leads to the development of different sectors in the economy hence leading to economic growth. Furthermore, depending upon the findings of this current study, the research indicates that the domestic savings of the public in Jordan significantly contribute to the economic development of Jordan. Therefore, the government must focus on the promotion of domestic savings and must introduce different plans that must promote savings among the public. Current research is a significant contribution to Jordanian economic literature and also contributes significantly to the knowledge of the think tanks and concerned government authorities in Jordan so that they can design their policies accordingly. Economic development is essential for each country; therefore, factors identified as significant contributors to economic growth must be prioritized by the Jordanian government.