The Impact of Foreign Direct Investment on Economic Growth in Jordan: A Study of the Period 1978-2021

Abstract

Objective: This paper aims to measure the impact of foreign direct investment on economic growth in Jordan during the period (1978-2021), based on a set of standard tests that will help clarify the relation between the variables of the study. Theoretical Framework: This paper proposes to examine the benefits of an open market economy based on trade and investment liberalization. The focus will be on factors that attract foreign direct investment, such as improving GDP, infrastructure, and political stability. These factors significantly impact employment rates, technology transfer, export development, and balance of payments. Method: The study used Eviews-9 to estimate a suitable linear model. A unit root test using ADF methodology indicated stationary variables at I(0) level. The Johansen methodology was used to perform a joint integration test, which showed that the two variables were complementary according to the Trace Test and Maximum Eigenvalue. Results and Discussion: After estimating the results of the equation using the Ordinary Least Squares regression (OLS), the results indicate that if the percentage of foreign direct investment increases by 1%, the GDP increases by 0.05%. All transactions are statistically significant at a level less than (0.01). R2 also indicates that FDI explains 18% of changes in GDP. Research Implications: Foreign direct investment is crucial for developing countries like Jordan, as it helps increase cash flows. Jordan strives to create favorable laws to attract more investments. Originality/Value: The study compared Jordan's case with previous studies and found similarities and differences. Jordan's political, security, and geographical situation, along with continuous development of investment-related legislation, made it more fortunate than others.