A Study on Monetary Policy, Foreign Direct Investment, and Syrian Crisis: The Case of Jordanian Economy

In the last two decades, the Jordanian economy has faced several economic challenges. The government of Jordan has consistently endeavoured to define a clear path
encompassing regulatory adjustments, structural reforms, and incentives aimed at enhancing economic growth and development, as well as improving the business and
investment environment for both domestic and foreign enterprises. However, despite these regulatory adjustments and procedures, the Jordanian economy still faces
significant problems. Firstly, there has been a decline in FDI inflows; secondly, rising inflation; and thirdly, the Syrian crisis has affected the Jordanian economy adversely.
Hence, the aims of this study are First, to determine the effectiveness of monetary policy to stabilize the inflation rate. second, to examine the effects of monetary policy
on FDI inflow. third, to assess the effects of the Syrian crisis on the Jordanian economy. This study employs SVAR methodology for the first objective while the ARDL bound test approach is used for the second and third objectives, over the period 1980 to 2021. Results show that, first, monetary policy significantly affects inflation. Second, the monetary policy significantly influences FDI inflow. The shock in the money supply has a positive significant effect on attracting foreign direct investment, while the shock in interest rate has a significant negative effect. Lastly, the Syrian crisis has had a negative effect on the Jordanian economy. Precisely, the Syrian crisis influx harms the Jordan's output growth through imports, inflation, and unemployment. Based on these results, the study recommends that the Central Bank of Jordan (CBJ) should consider tight monetary policy as a stabilization tool to mitigate the negative effects of external shocks on the domestic economy. Secondly, to control the negative effects of the Syrian crisis on output growth, the Jordanian government should employ a diplomatic strategy to resolve the conflict between the Syrian government and the Syrian opposition. Finally, Jordan should strengthen its trade relations with other countries and reorganize its economic policies to attract foreign investors.