Ahmad Alnawasreh

This paper addresses the macroeconomic determinants of Jordan’s external debt. The study aims at exploring the impact of foreign direct investment inflows on external debt service, gross domestic product (GDP), inflation, government spending, and real exchange rate, on the external debt of Jordan from 1980 to 2022. The study utilizes the autoregressive distributed lag (ARDL) bound cointegration econometric model to establish long-run relationships between variables. The model also investigates short-run dynamics via an error correction model to give insight into how quickly the system returns to equilibrium following a shock. Statistical results demonstrate an inverse link between foreign direct investment and debt, where a 1% increase in investment reduces debt by 0.15311%. Similar patterns are seen with GDP and external debt, where a 1% GDP rise reduces debt by 0.4743%. Government spending shows a direct relationship, with a 1% increase causing a 1.02049% debt rise. Real exchange rate and inflation impact debt, with a 1% rise causing debt to increase by 0.067 and decrease by 0.00771 dollars, respectively, though these effects are relatively small. In the short run, the system adjusts to shocks with an error correction coefficient indicating a 24% correction to equilibrium each period.