The impact of monetary and fiscal regulatory policies on the balance of payments: A case study from the emerging market

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Abstract

This study investigates the impact of monetary and fiscal policies on the balance of payments (BoP) in Jordan. Through a robust econometric model, it explores the influence of key independent variables such as domestic credit, money supply, consumer price index, government expenditure, and tax revenue. Unit root test and co-integration (bound) test are employed to ensure methodological credibility. The analysis reveals significant relationships between these variables and the BoP-to-GDP (gross domestic product) ratio. Notably, domestic credit to GDP exhibits a significant positive relationship, while money supply to GDP has a substantial negative impact. Government expenditure to GDP shows a positive influence, whereas tax revenue to GDP lacks statistical significance. The consumer price index demonstrates a significant negative influence. Dummy variables representing the financial crisis and Arab Spring exhibit significant negative impacts. The model explains 65.26% of the variation in the BoP/GDP relationship. Additional diagnostic tests confirm the model’s robustness. This research offers valuable insights for policymakers aiming to enhance Jordan’s external sector stability and resilience.

Keywords: Balance of Payments, Auto-Regressive Distributed Lags (ARDL), Jordan, Monetary Policy, Fiscal Policy

Authors’ individual contribution: Conceptualization — A.I.A. and T.A.W.; Methodology — A.I.A. and T.A.W.; Formal Analysis — A.I.A. and T.A.W.; Investigation — A.I.A.; Writing — Original Draft — A.I.A.; Writing — Review & Editing —T.A.W.; Visualization — A.I.A.; Supervision — T.A.W.; Project Administration — A.I.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: B22, F41, E52, E63, E62

Received: 14.01.2024
Accepted: 23.12.2024
Published online: 25.12.2024

How to cite this paper: Awartany, A. I., & Warrad, T. A. (2025). The impact of monetary and fiscal regulatory policies on the balance of payments: A case study from the emerging market. Journal of Governance & Regulation, 14(1), 8–17. https://doi.org/10.22495/jgrv14i1art1