TAF PUBLISHING

The first objective of this study is to examine short and long-run relationship between the banking system of Jordan as represented in conventional Banking System (CBS) and Islamic Banking System (IBS) with the macroeconomic variables as represented by Gross Domestic Product (GDP) and Money Supply (MS). The second objective of the study is to investigate the short-run relationship between banking system with the global events’ variables as represented by the Global Financial Crisis (D1) and the Arab Spring (D2). For analytical purposes, this study has employed ARDL approach on the sample gathered from the 1978-2013 period; also it used different tests such as ADF and P-P to detect the integration and bounds F-statistics test to investigate the co-integration among the variables. However, the results showed that, GDP and MS have positive relationship with both conventional and Islamic banking system in short and long run. Furthermore, the global events’ findings indicated that, Islamic banking system was less affected by the global financial crisis than conventional banking. On the other hand, the Arab Spring has a positive relationship with the banking system, because most of the refugee businesses and investments were transferred to Jordan because of the political stability of the country. Furthermore, the results of Granger causality test demonstrated that, Jordan’s banking system is based on the real economic activity, which is presented by GDP.