The contribution of manufacturing and service sectors in attracting FDI inflows in Jordan : an ARDL bounds testing approach

Abstract EN

This paper aims to analyze, along with other factors, the role played by Jordan’s manufacturing and service sectors in attracting foreign direct investment (FDI) inflows to Jordan from 1980 to 2016 by utilizing the Autoregressive Distributed Lagged (ARDL) Model.

The estimation results revealed that in the long-run, the explanatory variables market size; service sector, infrastructure, and trade openness have a significant positive impact on FDI inflow except inflation is insignificant.

On the other hand, financial development and manufacturing variables are negative and significant.

The results show that FDI is market-seeking type.

Therefore, increasing the market size represented by economic growth, is a good factor to attract FDI.

The results recommend many policy implications that can attract more FDI to Jordan.

First, the public and private sectors are advised to increase technological competencies in the manufacturing sector since FDI inflows are mostly of high technological level.

Second, increasing the level of modern services will also help in attracting more FDI.

Third, the government needs to stabilize the economy by reducing the inflation rate to its minimum.