The Relation between the Financial Market Development and Economic Growth in Jordan

Alaa Aldweik ,Shatha Abdul-Khaliq ,Hana Jaradat

doi:10.7176/jesd/10-14-12

Abstract

The purpose of this study is to examine the relationship between economic growth and financial market development in Jordan through the co-integration and error correction model between during the period 2000-2018. The study employs the error correction model to determine the short-run dynamics of the system and the cointegration test to examine the long-term relationship . The study is limited to a few variables, changes in real Gross domestic product GDP and the IMF indicator for financial market development . The results show that in the long-term there is a significant relationship between economic growth and financial market development for Jordan data., while in the short-term there is no statistically significant relationship between the stock market development and economic growth. Furthermore, causality is going from economic growth to financial market development, not vice versa. Keywords : Economic Growth, financial market development, Amman stock market, IMF indicator. DOI: 10.7176/JESD/10-14-12 Publication date: July 31 st 2020

Highlights

IntroductionThe correlation between financial market development and economic growth has received considerable attention form researchers and decision makers in different countries, (especially developing countries), which aim to improve living standard’s trough increasing the individual share of there capital income
The correlation between financial market development and economic growth has received considerable attention form researchers and decision makers in different countries, which aim to improve living standard’s trough increasing the individual share of there capital income
The two economic variables included in this study are the Economic Growth rate which calculated by changing in Real Gross Domestic Product At Constant Prices (GDP) and financial market development index was developed for IMF staff, it focus on stock market and debt market development.(This index was originally prepared for the IMF Staff Discussion Note “Rethinking Financial Deepening)

Summary

Introduction

The correlation between financial market development and economic growth has received considerable attention form researchers and decision makers in different countries, (especially developing countries), which aim to improve living standard’s trough increasing the individual share of there capital income. In an attempt to answer the previous question, most studies focused on the rule of financial market development in the economic growth. The direction in which the financial markets have evolved over time and the strong association of this development with capital accumulation and growth, present striking regularities and common features in many economies. The main purpose of this paper is to investigate the mutual relationships between economic growth (GDP) in Jordan and development of market financial system.

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Conclusion