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Do Financial Market Lead to Economic Growth? A Causality Test in Jordan
Journal of Investment and Management
Volume 2, Issue 5, October 2013, Pages: 87-103
Received: Aug. 23, 2013; Published: Oct. 20, 2013
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Authors
Najeb Masoud, Department of Accounting and Finance, Middle East University Business School, Jordan
Glenn Hardaker, Development of Innovation Management, University of Huddersfield Business School, United Kingdom
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Abstract
This study investigates empirically into the acclaimed positive role played financial market leading growth, with evidence from the Jordan financial market. Utilising, several econometric techniques models, such as unit root test, co-integration test and formal tests of causality developed by C.J. Granger and yearly Jordan data for the period 1980-2012. Results show that both Engle-Granger and Johansen co-integration test support the view that there is a short-run and long-run relationship between financial market development and economic growth in Jordan. On the other hand, there was no evidence to support the view that financial market in Jordan is a leading sector in the process of the country’s economic development. In particular, the causality relationship between financial market development and economic growth in Jordan is bi-directional. Higher development in the financial market causes higher real economic growth. High economic growth in turn promotes development in the financial market. This study’s results will be useful in reaching policy decisions to develop financial markets to increase economic growth in developing countries or/ emerging economies, in general, and within Jordan, in particular. Furthermore, providing empirical evidence regarding this critical issue within specific emerging economies will add to the literature on financial market related to the role of financial market development and its influence on economic growth and, thus, initiate an exciting topic for research.
Keywords
Financial Market, Economic Growth, Error Correction, Co-integration, Granger Causality Models, Jordan
To cite this article
Najeb Masoud, Glenn Hardaker, Do Financial Market Lead to Economic Growth? A Causality Test in Jordan, Journal of Investment and Management. Vol. 2, No. 5, 2013, pp. 87-103. doi: 10.11648/j.jim.20130205.11
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