Economical determinants of domestic

stationary
dataand differentiate between long and short-term relationships.
Finally, this research was conducted following recent economic reform efforts in
Jordan, involving the adoption of laws that encouraged both domestic and foreign
investment, and that resulted in the increase in economic growth rates during the 2000’s,
combined with of the inflow of foreign capital, new technology, export expansion, and the
search for new policy options that could contribute to accelerate domestic investment in
Jordan.
The policy concern of this finding in post-reform era is clear: if it is positive, both in
the short and long-run as shown by our results, then development of domestic factors as well
as external capital may lead to domestic investment acceleration. Thus, it is important for
Jordan to restructure and develop domestic factors (such as financial intermediation, human
capital, exports), structure for undertaking efficient investment allocation and to cater for an
external capital market that is showing greater interest in Jordan's emerging economy.
The remainder of the paper is organized as follows. Section 2 reviews Jordan’s
economic background. This is followed by the relevant theoretical and empirical
considerations. Section 4 provides econometric method. Section 5 contains data description
and empirical results. Finally, the last section contains the concluding remarks.
2.Jordan's Economic Background
By the end of 1990s, Jordan’s corporate environment is conducive to modernising the
bureaucracy of the state, tariffs, taxes, employment constraints, adapting the financial and
educational systems in view of the new challenges brought about by globalization and the
modernization of infrastructures, particularly in the fields of transport and
telecommunications, profit repatriation and the protection of property rights.
Jordan became an attractive channel for duty and quota-free access to major world
markets, including the European Union (EU) and the United States (US), after establishing
Qualified Industrial Zones (QIZ) in 1997(Ministry of Industry and Trade, 1997, 2000) -
industrial parks from which goods can be exported duty free to the United States -, and
entered the World Trade Organization (WTO) in 2000, signed a free trade agreement with the
US in the same year, prior to concluding an association agreement with the EU in 1999
(Ministry of Industry and Trade, 1999). Furthermore, Jordan made efforts to adopt laws that
encourage FDI, which is a vehicle for new technology.

---

European Scientific Journal
April edition vol. 8, No.7
ISSN: 1857 – 7881 (Print)
e -
ISSN 1857- 7431
4
The empirical evidence suggests production of high-tech products in the low-wage
country yields an extra-profit or a rising market share for domestic producers or foreign
investors. This extra profit may allow Jordan, as well as the other developing countries, to
catch-up with developed countries and as such should be considered an important revenue
source.
Jordan's economy has, in fact, shown inconsistent growth rates. Table (1) shows that
Jordan had rapid GDP growth rates during the 1980’s, while it had the lowest growth rates
during 1990’s (around 2 %), and good rates during the first half of 2000’s as it ranged from
4.1% to 7.7%, but in contrast, domestic investment ratios did not show any improvement
during 2000’s. With the exception of the 1980’s, domestic investment as a percentage of
GDP was a modest percentage and it ranged between 19% and 22% during the 1990’s and
first half of the 2000’s. The gross domestic investment was matched mostly by low rates of
domestic savings as shown in the table. Thus, the need arises to fill the gap in resources with
the inflow of foreign capital, mainly in the form of either Foreign Direct Investment (FDI) or
foreign borrowing.
Over the years financial deepening as measured by M2/GDP in Jordan took place. For
instance, the ratio increased from 85 % in 1980 to 113 % in 1990, and from 124 % in 2000 to
133 % in 2010. Indeed, various policies and measures have been introduced to promote
exports of goods. Therefore, Jordan’s integration efforts led to a significant increase in new
FDI as well domestic investment. For example, there is a surge in FDI into Jordan's
Qualifying Industrial Zones (QIZs) motivated by the country's privileged access to the United
States market for goods produced in those qualifying zones. The total amount of investments
in Jordan's QIZs has reached ($600) million, and the total exports jumped from ($700)
million JD in 1990 to more than ($2700) million JD in 2010, around (30%) of the total
exports is going to United States of America’s market.
Table 1. Macroeconomic Indicators for Jordan
Key Indicators
Years
1980 1990 2000 2007 2008 2009 2010
GR 11 1.6 4.8 5.3 5.7 4.1 7.7

---

European Scientific Journal
April edition vol. 8, No.7
ISSN: 1857 – 7881 (Print)
e -
ISSN 1857- 7431
5
GDI 38.8 23 22.4 21.1 20.4 21.2 19.8
GDS 19.3 5
11.7 10 14 20 19
M2 84.5 113 124 124 125 134 133.1
FDI 10.2 25 577.7 97.6 52.8 309.3 461.6
X 15 25.5 23 25.6 29.3 30.9 34.7
M 61.4 62 54.4 54.2 53.7 57.7 71
Inf
15 14.4 0.7 1.8 1.8 2.3 3.4
Note: Gr: growth rates of real GDP; GDI, gross domestic investment as a percentage
of GDP; GDS, gross domestic savings as a percentage of GDP; M2, money deepening as a
percentage of GDP; X, exports of goods as a percentage of GDP; M, imports of goods as a
percentage of GDP; Inf, inflation rates.
Sources: Various issues of monthly statistic bulletin of Central Bank of Jordan and
various issues of national accounts of department of statistics.