External Debt Influence on Economic Growth: A Case Econometric Study in Jordan during (1990) till (2021)

Abstract

This study investigated the impact of external debt on Jordan's economic growth from 1990 to 2021, employing the Vector Autoregression (VAR) Model alongside econometric and descriptive methods. The Johansen cointegration test confirmed a long-term integrative relationship between the variables, revealing that external debt negatively affected economic growth, contributing 3.04% to the forecast error for economic growth rates in subsequent periods. Furthermore, the variance decomposition analysis highlighted the divergent impacts of other variables such as FDI and domestic debt, illustrating the complexities of economic policy. The findings underscore the necessity of prudent debt management, recommending that borrowing be limited to financing productive projects and not for supporting service projects. The government is advised to rigorously assess borrowing risks through payback terms, interest rates, and loan purposes, while also exploring alternative financing methods for profitable enterprises.