Abstract

The research aims at analyzing the causal relationship among Foreign Direct Investment, Domestic saving and Economic Growth in Jordan during the period (1975–2013).

The Co-integration Test of Johansen shows that foreign direct investment and domestic saving are in the long run relationship with real income growth in Jordan. Whereas, the impact of foreign direct investment on economic growth is statically significant while the impact of domestic saving is not statistically significant on economic growth in the long run in Jordan.

The results of error correction model show that: ECT (Error Correction Term) is 5.5619%, negative and statistically significant at ?= 1% which means that the short run values of GDP converge it's long run equilibrium level by 5.5619% speed of adjustment every year by contribution of Foreign Direct Investment (FDI) and Domestic saving (DS) in Jordan.

Granger Causality Test show that foreign direct investment in Jordan is output and saving driven which means that if income and saving increases, Jordan will attract more foreign direct investment.

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