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http://dx.doi.org/10.13106/jafeb.2021.vol8.no5.0325

The Effect of Banking Industry Development on Economic Growth: An Empirical Study in Jordan  

ALMAHADIN, Hamed Ahmad (Department of Finance and Banking Sciences, Faculty of Business, Applied Science Private University)
AL-GASAYMEH, Anwar (Department of Finance and Banking Sciences, Faculty of Business, Applied Science Private University)
ALRAWASHDEH, Najed (Financial and Accounting Sciences Department, Faculty of Business, Middle East University)
ABU SIAM, Yousef (Department of Accounting, Faculty of Business, Applied Science Private University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.5, 2021 , pp. 325-334 More about this Journal
Abstract
This study aims to investigate whether economic growth is elevated by banking industry development in Jordan. The study adopts time-series econometric methodologies, which comprise the bounds testing approach within the autoregressive distributed lag (ARDL) and the conditional causality analysis. Consistent with the assumptions of the adopted methodology, the study utilized annual time-series data for a relatively long period of thirty-nine years, between 1980 and 2018. The empirical results show that Jordan's economic growth is strongly responsive in respect to any changes in banking industry development. Also, the results reveal the harmful impact of rising lending interest rate; as this rate increases, economic growth will decrease. The findings are in line with the conceptual arguments of the supply-leading hypothesis, which confirmed that banking development is considered as one of the main pillars that have stimulating effects on economic growth. The evidence of the current study may provide important implications for policymakers and bankers. Those professionals should work to maintain a stable regulatory system that enhances the banking system function in activating economic growth. Also, a considerable focus should be placed on designing a steady interest rate policy to avoid the inherently undesirable impacts of high-interest rates on the Jordanian economy.
Keywords
Banking Industry; Economic Growth; ARDL; Conditional Granger Causality; Jordan;
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