Domestic Debt and Economic Growth in Jordan An Empirical Analysis

Abstract

Jordan’s economy is among the smallest in the Middle East, with insufficient supplies of water, oil, and other natural resources underlying the government's heavy reliance on foreign assistance. Other economic challenges for the government include chronic high rates of poverty, unemployment, inflation, and a large budget deficit. The study investigates the impact of debt on economic growth in Jordan applying the OLS technique for the period of 2000 to 2014. The study indicates that the stock of domestic debt affects the economic growth positively and statistically significant. This indicates that loans partially were utilized by the government for investment oriented projects. On the other hand, the increasing figure of the public debt indicates that the rest used for private and public consumption purposes, which do not bring any return. The study also indicates that the domestic debt servicing affects the economic growth negatively in Jordan. This result is due to the fact that huge amount of money goes for non-development expenditures and also the rest goes for unnecessary expenditures. The study suggests some policies which should be taken by the government to decrease both domestic debt and domestic debt servicing.

Keywords: Domestic debt, Economic growth , Jordan Economy.