The Banking Sector Determinants Role on Economic Development: Evidence from Jordan

The thesis investigates the effect of bank related variables on the growth of gross domestic products of Jordan, namely bank size represented by the logarithmic form of total assets of banks, bank deposits represented by the percentage of bank deposits to total assets of the bank, non-performing loans represented by nonperforming loans to the total loans of the bank, and liquidity represented by the percentage of cash and balances in bank to total assets. The analysis was carried out by analyzing a panel consisting of 7 banks using annual data from 2008 to 2015. Different econometric techniques were used including correlation analysis, unit root test, redundant fixed effect analysis, regression analysis under fixed effect model, and granger causality. Results suggest that there are four main determinants of the gross domestic products of Jordan which are bank size, bank deposits, bank credit, and non-performing loans. Banks’ board of directors should aim at increasing the size of the bank to increase bank credits, deposits and increase the gross domestic products of the country. Government officials should facilitate the strengthening of the banking sector by imposing rules in favor of banks by providing subsidies and tax deductions. Bank management should encourage individuals and companies to take loans in order to improve their businesses which will lead to more economic growth. Keywords: Non-performing loans, gross domestic products, fixed effects, Granger causality.