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Do Financial Market Lead to Economic Growth? A Causality Test in Jordan

Received: 23 August 2013     Published: 20 October 2013
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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.

Published in Journal of Investment and Management (Volume 2, Issue 5)
DOI 10.11648/j.jim.20130205.11
Page(s) 87-103
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2013. Published by Science Publishing Group

Keywords

Financial Market, Economic Growth, Error Correction, Co-integration, Granger Causality Models, Jordan

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Cite This Article
  • APA Style

    Najeb Masoud, Glenn Hardaker. (2013). Do Financial Market Lead to Economic Growth? A Causality Test in Jordan. Journal of Investment and Management, 2(5), 87-103. https://doi.org/10.11648/j.jim.20130205.11

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    ACS Style

    Najeb Masoud; Glenn Hardaker. Do Financial Market Lead to Economic Growth? A Causality Test in Jordan. J. Invest. Manag. 2013, 2(5), 87-103. doi: 10.11648/j.jim.20130205.11

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    AMA Style

    Najeb Masoud, Glenn Hardaker. Do Financial Market Lead to Economic Growth? A Causality Test in Jordan. J Invest Manag. 2013;2(5):87-103. doi: 10.11648/j.jim.20130205.11

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  • @article{10.11648/j.jim.20130205.11,
      author = {Najeb Masoud and Glenn Hardaker},
      title = {Do Financial Market Lead to Economic Growth? A Causality Test in Jordan},
      journal = {Journal of Investment and Management},
      volume = {2},
      number = {5},
      pages = {87-103},
      doi = {10.11648/j.jim.20130205.11},
      url = {https://doi.org/10.11648/j.jim.20130205.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20130205.11},
      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.},
     year = {2013}
    }
    

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  • TY  - JOUR
    T1  - Do Financial Market Lead to Economic Growth? A Causality Test in Jordan
    AU  - Najeb Masoud
    AU  - Glenn Hardaker
    Y1  - 2013/10/20
    PY  - 2013
    N1  - https://doi.org/10.11648/j.jim.20130205.11
    DO  - 10.11648/j.jim.20130205.11
    T2  - Journal of Investment and Management
    JF  - Journal of Investment and Management
    JO  - Journal of Investment and Management
    SP  - 87
    EP  - 103
    PB  - Science Publishing Group
    SN  - 2328-7721
    UR  - https://doi.org/10.11648/j.jim.20130205.11
    AB  - 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.
    VL  - 2
    IS  - 5
    ER  - 

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Author Information
  • Department of Accounting and Finance, Middle East University Business School, Jordan

  • Development of Innovation Management, University of Huddersfield Business School, United Kingdom

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