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Capital Formation in Monetary Growth Models: An Empirical Study of Selected Arab Countries

Received: 11 February 2019     Accepted: 10 April 2019     Published: 29 April 2019
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Abstract

The purpose of this paper is to investigate factors affecting capital formation in selected Arab Countries. These countries are Bahrain, Egypt, Jordan, Kuwait, Morocco, and Saudi Arabia. It adopts neoclassical monetary growth models derived from Sidrauski model to examine the substitution relationship between money and capital. Further analysis has been conducted to examine the complementarity relationship between money and capitalthat was driven based on Mackinnon argument. In his argument Mackinnon objected the perfect substitution relationship between capital and money in developing countries, where financial markets are immature and inefficient. Accordingly, investors will depend on self financing, where savings are held in money. As a result, an increase in money demand will contribute in increasing capital. Moreover, Mackinnon emphasizes the role of government expenditure in improving capital stock. The analysis has been performed with unbalanced pooled data, and models have been tested by using the GLS method considering fixed and random effects. The results indicate that self-financing and government expenditure play a significant role in improving capital stock. These results are consistent with Mackinnon argument and might explain the contribution of money supply in improving capital stock in developing countries.

Published in International Journal of Business and Economics Research (Volume 8, Issue 2)
DOI 10.11648/j.ijber.20190802.12
Page(s) 50-57
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Growth Model, Capital Formation, Inflation Rate, Interest Rate, Money Supply

References
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  • APA Style

    Osamah Bin Tareef, Walid Shawaqfeh. (2019). Capital Formation in Monetary Growth Models: An Empirical Study of Selected Arab Countries. International Journal of Business and Economics Research, 8(2), 50-57. https://doi.org/10.11648/j.ijber.20190802.12

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    Osamah Bin Tareef; Walid Shawaqfeh. Capital Formation in Monetary Growth Models: An Empirical Study of Selected Arab Countries. Int. J. Bus. Econ. Res. 2019, 8(2), 50-57. doi: 10.11648/j.ijber.20190802.12

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    AMA Style

    Osamah Bin Tareef, Walid Shawaqfeh. Capital Formation in Monetary Growth Models: An Empirical Study of Selected Arab Countries. Int J Bus Econ Res. 2019;8(2):50-57. doi: 10.11648/j.ijber.20190802.12

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  • @article{10.11648/j.ijber.20190802.12,
      author = {Osamah Bin Tareef and Walid Shawaqfeh},
      title = {Capital Formation in Monetary Growth Models: An Empirical Study of Selected Arab Countries},
      journal = {International Journal of Business and Economics Research},
      volume = {8},
      number = {2},
      pages = {50-57},
      doi = {10.11648/j.ijber.20190802.12},
      url = {https://doi.org/10.11648/j.ijber.20190802.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20190802.12},
      abstract = {The purpose of this paper is to investigate factors affecting capital formation in selected Arab Countries. These countries are Bahrain, Egypt, Jordan, Kuwait, Morocco, and Saudi Arabia. It adopts neoclassical monetary growth models derived from Sidrauski model to examine the substitution relationship between money and capital. Further analysis has been conducted to examine the complementarity relationship between money and capitalthat was driven based on Mackinnon argument. In his argument Mackinnon objected the perfect substitution relationship between capital and money in developing countries, where financial markets are immature and inefficient. Accordingly, investors will depend on self financing, where savings are held in money. As a result, an increase in money demand will contribute in increasing capital. Moreover, Mackinnon emphasizes the role of government expenditure in improving capital stock. The analysis has been performed with unbalanced pooled data, and models have been tested by using the GLS method considering fixed and random effects. The results indicate that self-financing and government expenditure play a significant role in improving capital stock. These results are consistent with Mackinnon argument and might explain the contribution of money supply in improving capital stock in developing countries.},
     year = {2019}
    }
    

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    T1  - Capital Formation in Monetary Growth Models: An Empirical Study of Selected Arab Countries
    AU  - Osamah Bin Tareef
    AU  - Walid Shawaqfeh
    Y1  - 2019/04/29
    PY  - 2019
    N1  - https://doi.org/10.11648/j.ijber.20190802.12
    DO  - 10.11648/j.ijber.20190802.12
    T2  - International Journal of Business and Economics Research
    JF  - International Journal of Business and Economics Research
    JO  - International Journal of Business and Economics Research
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    EP  - 57
    PB  - Science Publishing Group
    SN  - 2328-756X
    UR  - https://doi.org/10.11648/j.ijber.20190802.12
    AB  - The purpose of this paper is to investigate factors affecting capital formation in selected Arab Countries. These countries are Bahrain, Egypt, Jordan, Kuwait, Morocco, and Saudi Arabia. It adopts neoclassical monetary growth models derived from Sidrauski model to examine the substitution relationship between money and capital. Further analysis has been conducted to examine the complementarity relationship between money and capitalthat was driven based on Mackinnon argument. In his argument Mackinnon objected the perfect substitution relationship between capital and money in developing countries, where financial markets are immature and inefficient. Accordingly, investors will depend on self financing, where savings are held in money. As a result, an increase in money demand will contribute in increasing capital. Moreover, Mackinnon emphasizes the role of government expenditure in improving capital stock. The analysis has been performed with unbalanced pooled data, and models have been tested by using the GLS method considering fixed and random effects. The results indicate that self-financing and government expenditure play a significant role in improving capital stock. These results are consistent with Mackinnon argument and might explain the contribution of money supply in improving capital stock in developing countries.
    VL  - 8
    IS  - 2
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Author Information
  • Business Economics Department, Faculty of Business, University of Jordan, Amman, Jordan

  • Business Economics Department, Faculty of Business, University of Jordan, Amman, Jordan

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