Economical determinants of domestic

h-statistic
1.0855 [0.278]
A: AR (1) .7510 [0.386]
B: RESET (1) 2.1909 [0.139]
C: Norm. (2) 1.2319 [0.540]
D: Hetero.(1) 1.3480
[0.538]
Note: Following Pesaran and Shin (1997), lag order of the ARDL model was selected
using Schwarz Bayesian Criteria (SBC) and the LM tests for testing residual correlation.
Asterisks ***, **, * represent 1%, 5%, 10% significant levels, respectively. The t-ratios are
reported in square brackets. The following notation applies: Gr, denotes growth rate of real
gross domestic product; GDI, gross domestic investment; FDI, foreign direct investment; FI,
financial intermediation (M2/GDP); H: human capital; X: exports of goods and services. The
probabilities of χ
2
for the diagnostic tests are represented in square brackets. A: Lagrange
multiplier based on the Breusch-Pagan LM test for residual serial correlation; B: Ramsey's
RESET test using the square of the fitted values; C: Based on a test of skewness and kurtosis
of residuals; D: Based on the regression of squared residuals on squared fitted values. T: was
not significant thus omitted from the table.
Finally, we examined the stability of the long-run parameters together with the short-
run movements for each equation. To this end, we relied on the CUSUM and CUSUMSQ
tests proposed by Brown et. al. (1975). The same procedure has been applied by Pesaran and
Pesaran (1997) and Bahmani-Oskooeeet. al. (2002) to test the stability of the long-run
coefficients. The tests applied to the residuals of the ECM models (Table 4).
6. Conclusion
The determinants of domestic investment in Jordan, as well as in developing countries,
have been widely investigated by a number of studies but the results are ambiguous. This
study has extended the investigation using appropriate and recent econometric methods,
namely the Autoregressive Distributed Lag (ARDL) approache according to Pesaran et al.
(2001). The results from ARDL are more likely to be more persuasive than their predecessors.

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European Scientific Journal
April edition vol. 8, No.7
ISSN: 1857 – 7881 (Print)
e -
ISSN 1857- 7431
14
Indeed, it contributes to literature by using recent data to cover post economic reform period
in Jordan that resulted in the adoption of new laws to encourage both domestic and foreign
investment, which resulted in increasing economic growth rates during the first half of 2000.
Domestic investment in Jordan is stimulated by real GDP growth as well as expansion
of exports of goods and services. This result indicates that if the growth rates of both real
GDP and exports will be sustainable during the next years, as in the period 2000-2005, the
growth rates of domestic investment will be better than during pre-2000’s period. Also, FDI
inflows to Jordan is “crowd in” domestic investment but with less magnitudes than GDP
growth and exports expansion. In addition, the development level of financial sector and
human capital is crucial for stimulating domestic investment in long term. Whereas, the
increase in domestic credit availability will enhance domestic investment in the short-run.
Hence, it is arguably worthy for the authorities to encourage both export expansion and FDI
inflows to stimulate domestic investment and thereafter economic growth.