The Impact of Financial Liberalization on Foreign Reserves in Jordan

Abstract

This study aimed to investigate the impact of financial liberalization on foreign reserves in Jordan over the period (1998-2018). Several diagnostic tests have been applied, such as Augmented Dickey- Fuller (ADF) and Phillips-Perron (PP) test for Stationarity. The results have shown that all of the time series are not stationary in their levels, where are their first differences are stationary according to Dickey- Fuller test (ADF), but the results have shown that some of the time series are stationary in their levels and some of them are stationary in the first difference according to Phillips-Perron test. Cusum stability test was applied for checking the stability of the model parameters, and the autoregressive distributed lag (ARDL) bound testing approach was applied for the cointegration test. The results have shown the financial freedom (as a proxy variable for financial liberalization) has a positive statistically significant impact on foreign reserves. So, this study recommends to extend financial liberalization in order to increase foreign reserves in Jordan.

Keywords: Financial Liberalization, Foreign reserves, Autoregressive Distributed Lag (ARDL) model.