The Impact of Domestic and External Public Debt on the Economic Growth of Jordan
International Journal of Business and Economics Research
Volume 9, Issue 4, August 2020, Pages: 254-262
Received: Jul. 16, 2020; Accepted: Jul. 29, 2020; Published: Aug. 10, 2020
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Eman Abdel Khalek Fseifes, Department of Business Economics, School of Graduate Studies, University of Jordan, Amman, Jordan
Talib Mohammad Warrad, Department of Business Economics, School of Business, University of Jordan, Amman, Jordan
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Since the beginning of the new millennium several developing countries have been making greater use of domestic bond markets, with a corresponding decline in gross and net foreign debt-to-GDP ratios. Jordan was not an exception; the structure of the public debt in Jordan has exhibited a similar shift towards the domestic borrowings after the year 2000. In order to assess the economic consequences of this change in the public debt structure, this study investigates the impact of the structure of the public debt and other determinants of growth on the economic growth in Jordan over the period 1980 – 2018. The analysis of the long-run relationship between the domestic and external public debt and the economic growth is reliant on the theoretical assumptions and the empirical concerns and it is conducted by applying the Fully Modified Ordinary Least Squares (FMOLS) method; the results indicate that the external and domestic public borrowings are negatively associated with economic growth with a greater magnitude of the domestic debt in the long-run; the greater magnitude of the negative implication of domestic debt on economic growth is attributed to the increased trend of domestic debt that has been increasing in excess of the external debt since 2008. On the other hand, investment, labor force growth, and openness of trade are found to be positively associated with economic growth in the long-run. Accordingly, this study recommends the need to reduce the public debt and budget deficit to moderate levels in the long-run through implementing austerity measures and fiscal discipline that are carefully planned to minimize the potential negative effect on economic growth, where they should be implemented along with fiscal reforms intended for increasing employment and boosting Jordan’s growth potential. It is also recommended that the government should thoroughly revise the debt management strategy, so as to avoid the deterring effects of the increased stock of domestic debt on capital accumulation and economic growth in the long-run.
Co-integration, Domestic Debt, Economic Growth, External Debt, FMOLS
To cite this article
Eman Abdel Khalek Fseifes, Talib Mohammad Warrad, The Impact of Domestic and External Public Debt on the Economic Growth of Jordan, International Journal of Business and Economics Research. Vol. 9, No. 4, 2020, pp. 254-262. doi: 10.11648/j.ijber.20200904.22
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