| Summary: | The issues of economic growth have been debated immensely in all over countries.
Likewise, Jordan has long sought to improve its economic growth by reforming the
fiscal policy and trade liberalization to achieve sustainable economic growth. However,
Jordan has been experiencing volatility in economic growth over the years. Therefore,
the main objectives of the study are: 1) to determine the long-run and short-run
relationship between taxes, government expenditure, public debt, trade liberalization
and economic growth in Jordan; 2) to examine the dynamic causality between taxes,
government expenditure, public debt, trade liberalization and economic growth in
Jordan; 3) to identify the impact of financial crises on economic growth in Jordan; 4)
to assess the responsiveness of economic growth to changes on taxes, government
expenditure, public debt and trade liberalization in Jordan. This study employed
Augmented Dickey-Fuller (ADF) unit root test, Philipps-Perron (PP) unit root test, Zivot
Andrews (A.Z) unit root test, Kapetanios (K) unit root test with a structural break,
Autoregressive Distributive Lags (ARDL) Bound cointegration test, Maki cointegration
test with tructural break, Granger causality test and Bayesian Vector Autoregressions
(BV AR). The results of both ARDL co integration test and Maki cointegration test
revealed that long-run co integration exists between taxes, government expenditure,
public debt, trade liberalization and economic growth. In addition, the result of ARDL
long-run estimates showed that taxes, government expenditure, trade liberalization have
positive and significant effects on economic growth. Additionally, public debt indicates
a significant negative effect on economic growth. However, the 1989 Jordanian crisis
has significant negative effect on economic growth. Besides, the 2008 financial crisis
has positive effect on economic growth. Furthermore, the results of Granger causality
test indicated that there is a bi-directional causality between government expenditure
and economic growth. Moreover, the result also showed unidirectional causal
relationship from economic growth to public debt and trade liberalization, and from
taxes to economic growth. On top of that, the result of impulse response and variance
decomposition disclosed that government expenditure and public debt is the most
important variables of influencing the economy in Jordan. The efforts by Jordan
government should be directed in creating an economic environment with a peaceful
political climate and financial discipline. They should also provide adequate taxes
reforms as there is a need to enhance trade balance through increasing Jordanian exports
as much as possible. Besides, the government should prioritize Jordan investment needs
in infrastructure projects and public services.
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