IMPACT OF PRIVATE SECTOR CREDIT ON REAL GROSS DOMESTIC PRODUCTION IN JORDAN: USING THE ARDL MODEL

Abstract

In view of the expanding body of literature on the enhancement of credit facilities and economic growth, the goal of this study was to investigate the effect of private sector credit on economic growth. The necessity to prevent estimate bias from possible model misspecification motivated this research. We accomplished this by using quarterly time-series data to expand the dataset. In order to achieve more satisfying results, the study looks further into the short- and long-term dynamics between real GDP growth and private sector credit in Jordan while also taking into account other important factors like gross fixed capital, government spending, and the prime lending rate. According to the publication, the research employed the Error Correction Term Approach (ECT) and Autoregressive Distributed Lag (ARDL) techniques. Real GDP and all other independent variables were shown to have long-term causal links since the ECT's sign was found to be significant and negatively skewed. The long-run connection's estimated coefficients showed a sizable influence on the rise in real gross domestic output. Variable "private credit" had a large positive impact on real GDP growth over the research period. This result can be explained by the crucial role that commercial banks play in fostering economic development. But as time went on, the mobile "gross fixed capital" had a fundamentally detrimental effect on GDP expansion. These results demonstrate that output is affected by shocks to the expansion of private sector credit beyond the first three quarters. According to the projected coefficient, a unit increase in private credit would result in a $0.002 gain in real GDP in the fourth quarter. Furthermore, it was established that rising gross fixed capital formation benefited real GDP. On how increasing government expenditure would immediately affect society, similar findings have been made. However, as indicated by the significant and negative coefficient, a rise in the prime lending rate has a negative impact on real GDP