The effect of remittances and foreign direct investment on economic growth in Jordan

Abstract

Remittances and Foreign Direct Investment (FDI) inflow into the Jordanian economy have been generally increasing throughout the past 30 years. This study aims to examine the short and long run effects of these inflows, especially on Gross Domestic Product (GDP) growth. The study utilizes the Autoregressive Distributed Lag (ARDL) model to analyze remittances and FDI data in Jordan for the period 1980 to 2014. Through the Augmented Dickey- Fuller, findings showed that GDP growth is stationary at the level and at first difference, whereas remittances and FDI are stationary at first difference. In addition, utilizing Wald Test for checking the availability of long run association, it was concluded that there is co-integration between the variables. Moreover, results revealed that remittances have a significant positive, yet small impact in the short run and no significant effect in the long run. Furthermore, this study also concluded that FDI affect growth negatively in the short run and positively in the long run.