Professor, Department of Planning and Project management, College of Business. Al-Balqa Applied University, Jordan
Department of Business Economics, School of Business, the University of Jordan, Amman –Jordan
The relationship between the size of public sector and the rate of economic growth has been widely examined empirically in different countries. Most applied studies confirmed the validity of the inverse relationship between the increasing role of the state in the economy, measured by the ratio of public spending to gross domestic product and rates of economic growth. These studies estimated the optimum rate that would guarantee achieving the highest economic growth rates. This study aims to analyses this relationship for the case of the Jordanian economy. Using a theoretically justified econometric model, the researchers have utilized an ARDL econometric technique to quantitatively assess this relationship for the period (1970-2018). The study relied on official data related to the gross domestic product published by the Central Bank of Jordan and official data related to public spending and public revenues published by the Jordanian Ministry of Finance. The econometric results of the study confirm the existence of an inverse relationship between the size of public sector and the rate of economic growth in Jordan, which may lend support to the hypothesis of the Armey curve. The optimal size of the government (public sector) is estimated to be about 26 percent, which is much lower than the actual average government size in Jordan. The researchers recommend the need to gradually cutting down the size of public sector through adjusting the real spending structure and restructuring the independent public institutions. The restructuring of independent public institutions requires the abolition of institutions that are not economically feasible and constitute more financial burdens on society on the one hand, and the merging of a number of them into an independent public institution that provides its services to the community in an efficient and effective manner. Researchers also recommend the need to continue privatizing the public sector and activating the role of partnership between the public and private sectors.
Keywords: size of public sector, government spending, economic growth, ARDL, privatization.
JEL Classification: H11, C22, F63, F6.
Cite as: Aljaloudi, J. A., Warrad, T.A.(2020). Economic Growth and the Optimal Size of the Public sector in Jordan. Financial Markets, Institutions and Risks, 4(3), 72-79. https://doi.org/10.21272/fmir.4(3).72-79.2020
This work is licensed under a Creative Commons Attribution 4.0 International License
- Afonso, A., Furceri, D. (2010). Government Size, Composition, Volatility and Economic Growth. European Journal of Political Economy, 26(4), 517–532. Retrieved from: https://papers.ssrn.com/sol3/ papers.cfm?abstract_id=1699715
- Armey, D. (1995). The Freedom Revolution. Washington DC. Regnery. ISBN 978-0-89526-469-5. Retrieved from: https://www.biblio.com/9780895264695
- Asimakopoulos, S., Karavias. (2015). The impact of government size on economic growth: a threshold analysis. Granger Centre Discussion Paper, 15(2). http://dx.doi.org/10.1016/j.econlet.2015.12.010
- Bergh, A., Karlsson, M. (2010). Government Size and Growth: Accounting for Economic Freedom and Globalization. Public Choice, 142 (1–2), 195–213. Retrieved from: https://www.jstor.org/stable/40541955
- Department of Statistic. Annual statistical yearbook (2000-2018). Amman. Jordan. Retrieved from: www.dos.gov.jo
- Central bank of Jordan: Summery of the public budget. Amman, Jordan. Retrieved from: www.cbj.gov.jo
- Central bank of Jordan: Gross National product in constant prices. Amman, Jordan. Retrieved from: www.cbj.gov.jo
- Dar, A., Khalkhali, S.A. (2002). Government Size, Factor Accumulation, and Economic Growth: Evidence from OECD Countries. Journal of Policy Modeling, 24 (7–8), 679–692. Retrieved from: https://www.sciencedirect.com/science/article/pii/S0161893802001631
- Fallahi, F., Shoorkchali, J. (2012). Government sixe and economic growth in Greece: A smooth transition approach. Retrieved from: http://www.econmodels.com/upload7282/6a6ba1cf08f52069e825ac 968dec 3b06.pdf
- Fölster, S., Henrekson, M. (2001). Growth Effects of Government Expenditure and Taxation in Rich Countries. European Economic Review, 45(8), 1501– 1520. https://doi.org/10.1016/S0014-2921(00)00083-0
- Forte, F., Magazzino, C. (2016). Government Size and Economic Growth in Italy: A Time-series Analysis. European Scientific Journal March, 12(7). ISSN: 1857 – 7881 (Print); e – ISSN 1857- 7431. http://dx.doi.org/10.19044/esj.2016.v12n7p149
- Greene, W. (2012) Econometric Analysis. 7th Edition, Prentice Hall. Retrieved from: https://www.scirp.org/(S(lz5mqp453edsnp55rrgjct55))/reference/ReferencesPapers.aspx?ReferenceID=1679068
- Susana, M., Veiga, F. J. (2013). Government size, composition of public expenditure, and economic development, NIPE working Paper 17/2013. Retrieved from: https://ideas.repec.org/p/nip/nipewp/17-2013.html
- Mauro, P., Romeu, R., Binder, A., & Zaman, A. (2015). A modern history of fiscal prudence and profligacy. Journal of Monetary Economics, 76, 55-70. Retrieved from: https://www.psc.isr.umich .edu/pubs/abs/10012
- Ministry of Finance. Annual Public Budget (1970-2019). Amman, Jordan. Retrieved from: www.mof.gov.jo
- Mehrare, M., Keikha, A. (2012). Government size and economic growth in Iran. In Economic Research. ISSN 2229-6-158, 32, 52-60. Retrieved from: https://www.researchgate.net/scientific-contributions/ 72109248-Mohsen-Mehrara
- Primoz, P. (2013). Does optimal size of government spending exist. Slovenia. Retrieved from: https://www.researchgate.net/publication/228757512_Does_optimal_size_of_government_spending_exist
- Prime Ministry. Retrieved from: www.pm.gov.jo
- Riayati, A., Norashida, O. (2014). Optimal size of government and economic growth in Malaysia, 9, 41-48. ISSN: 2231-962X. Retrieved from: http://www.ukm.my/fep/perkem/pdf/ perkem2014/PERKEM _2014_1B2.pdf
- Vedder, R. K., Gallaway, L. E. (1998). Government Size and Economic Growth. Washington, DC 20510. Retrieved from: https://www.jec.senate.gov/public
- Romero-Avila, Diego, and Rolf Strauch. (2008). Public Finances and Long-Term Growth in Europe: Evidence from a Panel Data Analysis. European Journal of Political Economy, 24(1), 172–191. Retrieved from: https://ideas.repec.org/a/eee/poleco/v24y2008i1p172-191.html
- Rousseeuw, P. J., Yohai V. J. (1984). Robust Regression by Mean of S- Estimators, Robust and Nonlinear Time Series Analysis, New York, 256-274, doi: 10.1007/978-1-4615-7821-5-15. Retrieved from: https://link.springer.com/chapter/10.1007%2F978-1-4615-7821-5_15
- IbnChaldoon. (2015). Retrieved from: https://ar.wikipedia.org/wiki .