The Effect of Economic and Financial Risks on Foreign Direct Investment in Jordan: Multivariate Analysis

Husni Ali Khrawish

doi:10.5539/ibr.v7n5p124

Abstract

The main objective of this study is to examine and analyze the effect of the economic and financial risks on foreign direct investment in Jordan during the period (1982–2012). We used Multivariate Data Analysis (MVA) to test the hypotheses of this study. The analysis has shown that there is significant effect between all independent variables which consists of economic risks model, financial risks model and foreign direct investment. The economic risks model includes gross domestic Product (GDP) per head of population, the real annual growth rate of GDP, the annual inflation rate and current account balance as a percentage of GDP. The financial risks model includes foreign debt as a percentage of GDP, foreign debt service as a percentage of export of goods and services (XGS), current account as a percentage of (XGS) and exchange rate stability. Finally the researcher suggests several factors that would increase the Jordanian investments, the important factors are: giving investors some advantages such as tax exemptions, improving domestic infrastructure, adequate legislation, regulation and safeguard and acceleration the treatment of investors.

Highlights

The purpose of this study is to investigate the economic and financial risks that have an impact on foreign direct investment (FDI) in Jordan during the period (1982–2012).To achieve this purpose, it is required to examine and analyze the impact of different factors of economic and financial risks on foreign direct investment in Jordan
We selected these models because FDI flows in general are affected by economic risks and financial risks, all variables which consists from these models are contributed to encourage FDI
The unit root tests results indicate that all the included variables in the economic risk model are integrated of order zero I(0) or integrated of order one I(1) that is the series of variables are stationary on the level form or the first difference form

Summary

Introduction

The purpose of this study is to investigate the economic and financial risks that have an impact on foreign direct investment (FDI) in Jordan during the period (1982–2012).To achieve this purpose, it is required to examine and analyze the impact of different factors of economic and financial risks on foreign direct investment in Jordan. FDI became very important in different countries (developing and developed countries) because it provides many needed resources to the developing countries such as capital, sophisticated technology add to the skills acquired. These resources are very important to developing countries in order to create jobs and reduce poverty in those countries, beside that developed countries has benefits from its investments and decreased its aids to developing countries (Nayyra et al, 2014). This study attempts to investigate the effect of the economic risks on foreign direct investment in Jordan during the period (1982–2012) based on time series data by using a Multivariate Analysis (MVA)

Objectives

Methods

Results

Conclusion