EXTERNAL DEBT AND ECONOMIC GROWTH IN JORDAN: THE THRESHOLD EFFECT

Aktham MAGHYEREH (The Hashemite University)
Ghassan OMET (The Hashemite University)
Fadwa KALAJI (The Hashemite University)

The Jordanian economy has a serious external debt problem. Based on several indicators, it can be argued that foreign debt has reached an excessive level and has become an impediment to economic growth.

This paper examines the impact of external debt on the performance of the Jordanian economy and determines the optimum level of debt, using new econometric techniques that provide appropriate procedures for estimation and inference.

The findings of the study indicate that the optimal level of external indebtedness is about 53 percent of GDP. In other words, when the level exceeds this level, its impact on the performance of the Jordanian economy becomes negative.