Financial Intermediation and Economic Growth of Jordan 1964-1988

Abstract

Until recently, the economics and financial literature placed little attention on the role that financial intermediation can play in accelerating the rate of economic development in less Developed Countries (LDCs). This has been changed now, however, where some instrumental role has been emphasised for financial intermediation in the process of economic development and growth. It is argued that an expansion of the financial system, size and intermediation in LDCs tends to increase the level of savings, thus increasing the funds available for productive investment which induces higher economic growth and development. This research attempts to measure the relationship between financial intermediation and economic growth in Jordan for the years 1964 - 1988. A model of this relationship is built and tested. It is concluded that some role is played by the financial intermediation ratio FIR on Saving, Investment and Economic growth.