The Role of Government Capital Expenditures in Economic Growth in Jordan

CHAPTER 1: INTRODUCTION

1.1 Introduction

Government legislation on public expenditure plays an essential role in fostering economic growth by balancing the country’s revenues and expenditures. Al Bataineh (2012) claimed when the economy experiences a recession, increased government spending will elicit a rise in the aggregate demand thereby assisting the economy to gradually recover. Intuitively, public expenditures improve economic growth by increasing productive capacity, as well as, the gross product of the local economy, especially in critical economic sectors (Al Bataineh, 2012). Nonetheless, increased public expenditures will also lead to inflation and reduce government budget, thereby inflicting detrimental influence on the economic performance of a country (Colombier, 2011). Reportedly, capital spending is one of the critical elements of public expenditure for the detailed and sustainable financial growth of a region. Nonetheless, the issue of the management, expenditures, as well as, distribution of capital expenditure in an equal manner to realize economic growth in each fiscal year is a daunting task (BOSE et al., 2007).

Data from the Department of Statistics (DOS) in Jordan show that public expenditures have been increasing since 1970. However, the country’s economy has been sluggish for years. Therefore, this decline in economic growth despite a gradual increase in public expenditures has elicited debate on whether increased public expenditure especially capital spending actually contributes to economic growth? Therefore, the proposed study pursues to inspect the influence of government capital expenditures on financial growth in Jordan. Based on the findings of the study, different solutions and recommendations will be proposed to enhance budget spending performance, minimize losses, wasteful use of public expenditures, and thereby boosting the economic growth of the country.

Many economists believe that government expenditure contributes to economic growth. While there is a growing body of evidence validating this correlation, the basic causal mechanisms remain inadequately understood. Governments achieve much of this duty using the fiscal policy instrument which makes it easier to intervene in the economy. The use of fiscal policy can best be explained using a simple Keynesian model, where an expansionary fiscal policy focuses on invigorating the economy and can be done by increasing government expenditure, implementing tax cuts, or by using both mechanisms (Dandan, 2011). By setting up budget targets and solidifying public expenditure and public works, some government expenditure policies may entail.

The concept of government expenditure receives a lot of attention, more so due to its significant role in guaranteeing economic success in the newly developed nations, such as Jordan. In Jordan, the government has in recent years made persistent efforts at fiscal consolidation (Dandan, 2011). For instance, the fiscal deficit remained high during the 2009-2012 period illustrating the general efforts of the government to deal with the impact of the global crisis. Besides, the heightened fiscal deficit also showed the cyclical deterioration in domestic revenues and the increase in regional political tensions (Dandan, 2011). Central government spending has also been relatively high in Jordan compared to regional nations and those with similar per capita GDP. Therefore, the high government spending points towards possible efficiency gains from restructuring spending across and within sectors.

Jordan has one of the best development programs in the Middle East. It's 2025 Vision program can be termed as best for creating economic opportunities in the country. This program is developed to create macroeconomic stability by decreasing improving monetary reserves and by fulfilling fiscal needs to increase inclusive growth. The Vision 2025 plan has been created through a medium-term economic program that is generated by the Extended Fund Facility. This program has been successfully supported by the IMF with the main focus of minimizing the public debt and protecting the poor citizens by consistent fiscal consolidation.

Jordan has also started various structure-based reforms throughout the last decade which is aimed at education, health, and liberalization of the country's economy. In addition to that, numerous social protection systems based on reform subsidies have built suitable conditions for private-public partnerships. The economic reform program launched by the Jordanian government is beautifully designed by the economic management team of Jordan. Moreover, it has been existed by getting Professional help from the economic team of the International monetary program inside the country.

In this idea, the role of management capital outlay in financial growth in the Kingdom of Jordan will be examined. The thesis describes the conduct of capital expenditures in terms of size and sector and investigates the correlation between capital expenditures and the general growth in the economy. Government based development programs leave positive effects on the economy. However, it should be noted that sometimes they leave the opposite effects on the industrial production index. Since in these cases sometimes government induced programs are highly inefficient and wasteful for the economy. Since in these, it is very difficult to correct market failures within the economy and it also fails to create a business climate supportive to the businesses. Critics of this policy believe that in these kinds of conditions this policy can only create economic opportunities for the high-income private businesses. Since that makes very difficult for small businesses to survive in tight economic conditions. Moreover, it also disturbs the overall growth of the economy.

Besides, capital expenditures across sectors in comparison to their GDP growth will be examined. The background of the study is explained in this introductory paragraph, and an overview of the problem being examined illustrated. The chapter also outlines the importance of the study, as well as the research questions, research objectives and research hypotheses that would guide the completion of the thesis.

1.10 Conclusion

Chapter 1 starts with the introduction between the government’s capital expenditure and the economic performance of the country. The discussion brings out the issue of the management, expenditures, as well as, distribution of capital expenditure in an equal manner to realize economic growth in each fiscal year. The chapter discusses the research background. The discussion points out that even though significant progress has been made in Jordan, the country still continues to experience tough economic times and makes a case to examine whether government capital spending would have an important influence on financial development in Jordan. The results created from this thesis are extremely good for the policy devising team working in the country. This team can easily use our study to improve the existing economic growth based policies. This thesis can also be used to interpret detailed research reports in Professional and complete way possible. The recommendations given in this thesis are also very good for encouraging fruitful discussions for creating beneficial future policies in the country. It will also help in the interpretation of various economic behaviors of the Jordanian economy. Our research will aid the Jordanian economic team to control and implement correct policies to stimulate economic growth with the help of positive economic policies. This will also help them to create economic opportunities for the lower and upper middle class. This upper and lower middle class is mostly involved in maximum consumer spending within the territory of the whole Middle Eastern and Jordanian economy. Our research will also aid the Jordanian economic management to reform their 5-year reform plans by setting realistic goals for the future generations of the country. These realistic goals are also very important for getting maximum results from the Vision 2025 economic plan of the Jordanian government. the Vision 2025 plan is the most important economic plan designed and implemented by the Jordanian government in the last few decades. Recent research reports also indicate that an upsurge in government spending can have a sturdy negative impact on investment spending and economic growth. Such an argument is evident in the study by Blanchard and Perotti (2002), who find a strong and adverse influence of larger government spending on isolated investment spending. The Initial literature review highlights the divergent views on the connection between government capital expenditures and the financial growth of the country. The chapter discusses the research problem, research gaps, and the significance of the study. Research study has aims as well as objectives, questions of research and research theories are developed to provide the structure of this important research on the financial growth of Jordan. In order to move forward, a detailed literature review is discussed in the next chapter.

CHAPTER 2: LITERATURE REVIEW

2.1 Introduction

Past studies have comprehensively investigated government capital expenditures and economic growth, particularly in developing countries. The above concepts generate many research interests due to their conflicting and long-lasting state in economic theory. For these reasons, this chapter reviews the theories and empirical studies conducted on this topic. Principally, there is a causal relationship between government capital expenditures and economic growth since the former dictates the economic performance of a country.

2.2.1 Government disbursements and economic growth

According to Mansouri (2008), there is a positive correlation between the two variables. Since this research has proved there was 1. 26 %, 1.15 %, 0.56 %, increase in the GDP in various countries. These results also confirmed the long term relationship between the above-given variables.

2.2.2 Influence between government outlay on economic growth

Colombier (2011) carried out a study to determine the relationship that exists between public expenditures and GPD. Intuitively, the causality relationship indicated that total government consumption has positive effects on GDP development. The research of the study further indicated that growth in GDP hardly expands government expenditures. From the estimation findings, it was revealed that public expenditures improve economic growth.

For regional development, infrastructure is one of the tools that we confirmed by Nijkamp in 1986. The other regional capacity and social-economic activities are directly or indirectly affected by it, in addition, the factor of production. The creator stresses that the foundation approach is a state of the local improvement strategy: it does not ensure local intensity, yet creates the necessary conditions for achieving provincial development goals. Economic competitiveness is determined by various aspects to say Snieska and Draksaite in 2007, and one of them is an indicator of infrastructure. In 2009 Bruneckiene and Snieska recognized the framework as one of the markers of the intensity of locales inside the nation. This alludes to the physical infrastructure (consisting of newly constructed properties, external accessibility of the region by land, road transport framework, water, and air) as production variable points, competitive conditions in the district. The factors that influence the investment atmosphere at the local level and increment the attractiveness of the region are infrastructure services and physical framework that were consolidated by Martinkus and Luskasevicius in 2008. For global competitiveness and sources, we inspect the extent of the infrastructure impact.

In 1989 Aschauer discovered that open venture almost everywhere the productivity growth fell strongly that was almost simultaneous. In 2008 Mamatzakis counts suggested that in Greece the infrastructure is a crucial component in the activity of the economy. Infrastructure is impacted in different angles: output, territorial aggressiveness, income inequality, monetary growth that is analyzed by the researchers, the effect on the environment and prosperity (in increased safety, time cost and savings, the development of information networks) by Bristow and Nellthorp in 2000.

Investment in infrastructure can stimulate hierarchical and management changes are argued by some authors: the development of the railway system can promote the institutionalization of the schedule, which promotes expanded income notwithstanding having railway service (Mattoon, 2004). For employment and output (GU, Macdonald, 2009) public infrastructure provides a deeper and wider geographical concentration of economic and market resources. Markets and resources of the finished product are affected by it, help determine examples of spatial improvement and provide a broad system of individual clients at low costs. To build an economy, public infrastructure is generally regarded as a foundation says Macdonald in 2008. Macdonald has led experimentation of the execution of sustainable development policies, In the field of strategic planning for socio-economic and sustainable, they noted the development of infrastructure as one of the most essential features in the development of the country.

In 1998 Aschauer confirmed that the open framework is the premise of the personal satisfaction: great streets diminish the number of mishaps and increment open wellbeing, water supply framework decreases the dimension of infection, squander the executives improves the wellbeing and style of nature. The relationship between the presence of infrastructure, education, wellbeing in the network was examined by Agenor and Moreno-Dodson in 2006 and demonstrated that infrastructure services are basic to guarantee the quality and accessibility of wellbeing and instruction, which give a riches impact to a large extent. Vitkauskaite, Damaskopoulos, Gatautis (2008) credited to the wellspring of infrastructure performance. In the 2000s Mamuneas and Demetriades recommend that social capital infrastructure has a critical positive effect on income and in 12 OECD the demand for private means of production and delivery of products. Mentolio made the results of the assessments and the idea was confirmed by Sole-Olle in 2009 that productive public investment in roads positively influenced by the relative increase in labor productivity.

In 2008, the effect of the public framework on the degree of private production and found that the private framework is essential for the private assembling segment. Organizations are taking a gander at social capital as an unpaid factor of production while maximizing benefits. Thusly, the foundation may incorporate capital-escalated facilities that are not of open intrigue. But most of the infrastructure is used by the public actively. The physical infrastructure or infrastructure capital such objects that are referred by the economist. The job of the foundation is assessed by the services delivered by the physical foundation resources in the scientific literature. Infrastructure services, like the delivery of water, transport, energy, sanitation and safe transfer of waste are necessary for all kinds of household activities and financial generation.

2.2.3 Jordan’s fiscal balances

In spite of constant attempts of government’s fiscal strengthening, Jordan’s fiscal balances are to fall in 2017 due to stagnant tax incomes and lesser allowances. The forecast for fiscal deficit for 2017 came out to be 6.4 percent which was 6.2 percent in 2016. Diminished tax earnings which are resulted by stunted growth are balanced by greater non-tax incomes while the revenue to GDP ratio remains constant. This is for the revenue side but for expenditures, interest payment to GDP ratio is foreseen to increase by 0.2 pp and by 2017 to reach at 29.2 percent. As the monetary position is being intensified, the primary parity is calculated to be-3.3 percent of GDP in 2017, being -3.2 percent in 2016.

2.2.4 Debt sustainability and fiscal policy

Maintaining the debt is just guaranteed with moderately hopeful suppositions including proceeded with the aid of the contributors. Despite having the IMF review concluded in 2017, a monetary space of US$1.25 Million in the latter half of 2018 is expected to be secured when the Euro bond is issued. The descending direction for public debt is declared on effective debt at sensible circumstances and proceeded with the usage of the financial union. Foreign direct investment rises by gainful structural policies and modifications and exterior sustainability highly depends on such suppositions. To minimize the crowding out effect, the government takes on loan more from abroad than from home. In October 2017, Commercial banks’ loan to the government sector increased by 1.6 percent yoy while that of the private sector rose by 10.2 percent yoy. To stabilize this act in the “debt mix” is dependent upon proceeded with market access at convenient terms. The gross fiscal deficit increased by 0.66 pp of GDP yoy in 2017 whereas the initial profits decreased by 0.64 pp yoy which resulted in a loss of 0.56 percent of pp.

A 0.13 pp has been enhanced in 2017 in domestic revenues growing from an elevation in nontax revenues that negate revenues that are low which is increasingly higher than the expectations. Total spending that has been a sum of the existing and capital expenses increased by 0.27 pp by the end of 2017.

2.2.5 Jordan fiscal policy and balance of payments

Reports of Bank of Jordan exhibits that the shortfall in the current account declined to 6 percent of GDP at the beginning of 2017 but was recorded to be 6.2 percent in 2016. So it showed better progress in 2017 which was due to a rise in 0.2 pp in income account and led to a 0.5pp decrease in present transactions.

The latest method has been taken up by the Department of Statistics which was used to do a study of the labor force in 2017. This survey was done on the suggestions given by ILO to further strengthen and elevate the reliability of the study. The sample of the survey was increased from 13,000 to 16000 houses, criteria being very limited by the new method which was established on the structure given by the 2015 population census. The results which came out of the new technique gave the unemployment rate to be 18.1 percent while LFP was 39.7 percent.

Contractionary Monetary Policy was adopted by the Central Bank of Jordan (CBJ) in collaboration with the Federal Reserve Board. Due to this policy, the exchange rate peg is maintained. Since 2016, the Central Bank of Jordan increased its interest rates four times.

2.2.6 Jordanian banks

Banks in Jordan are very secure, money making and appropriately sponsored. Since 2010, Jordanian banks have experienced slow growth but still have been moving towards betterment for five continuous years. Bank nonperforming loans ratio, which was 4.3 percent in 2016 turned out to be 4.4 percent in 2017.

However, return on value (ROE) and profit for resources (ROA) of both banks increased to 9.4 and 1.2 percent respectively, by H1-2017, compared with 8.8 and 1.1 percent in a preceding year. Meanwhile, the capital adequacy ratio and leverage ratio were drawn back to 17.6 and 12.9 percent by H1-2017, down from 19 and 13 percent at the end of 2016, respectively. The exposure of banks to state debt continued its downward trend, representing 34.2 percent of total assets toward the finish of October 2017, lower than the end of 2016, end of 2015 and the end of 2014, each stood at levels 36.2, 40.6 and 40, 8 percent, respectively. Finally, By the end of October 2017 Jordan’s net foreign asset (NFA) position of its commercial banks stood at minus the US $ 2 billion, down from minus the US $ 1.4 billion at the end of 2016 but illustrating sound improvement compared to minus the US $ 2.8 billion at the end of 2015. In general, loans to the private sector stood at 43.9 percent. This is of predicted GDP in October 2017. This remains unchanged since the last level of 2016. Thereby maintaining the improvement reaching a trough in 2014. Since 2010 the credits to the private sector has dropped to a lower plateau because it recorded an average share of GDP of 37.4 percent between 2010 to 2016. This is as compared with an average share of 52.4 percent in the pre-slow growth period of 2000 to 2009.

2..3.1 Supporters of Keynesian economic impact of government expenditure on growth

Economic experts and supporters of Keynesian economic believe that it is very essential to reduce government taxes and increase government spending to improve the overall economic growth in the economy[1]. Since, thus thong is very important for increasing aggregate demand. They also believe that, this tool is very effective while economy is going through low economic activity or recession. This tool also plays an important role in generating significant amount of employment opportunities for the overall labor force. The deficits present in the economy can also be solved through these tools of Keynesian economics including the framework for strong economic growth and working towards full employment. This policy can easily help in expanding the economy towards the boom scenario[2].

This school of through was successfully implemented during the great depression and post-world War 2 period. This policy successfully helped American governments during that period to improve the economy. The experts of the Keynesian economics claim that interference made by profit making private enterprises in the economy sometimes bring very adverse results for the economy. (Sullivan and Sheffrin, 2003). Therefore, they are strong supporters of strong fiscal policy which focuses on the stabilizing output over the business cycle.

This in the opinion of According to the Blinder, (2002) government can improve the investment climate within the economy through injection of income and that results in achieving greater spending within the overall economy. The result of this policy is also improves the investment and firm productivity. The spending of the income is also dependent on the company stimulation, spending and so forth. The economic activity of the companies also improves the original economic opportunities for labor force present in the economy.

This is very different from what neo classical and classical economists say about the fiscal policy. Although, they somehow believe that focal spending improves production but they don't believe that it can decrease side effects of negative private investment[3]. They also believed that financial incentive will also improve the labor wages, labor demand and company profitability. However, this will greatly decrease the market price of the government bonds. Since, market price decreases with the increase in the interest rates. Also, such kind of policy improves the economy and makes easier for country managers to make use of all the available resources in proper way possible. However, it should be kept in mind that sincere efforts to improve economy are very important to get fixed investment for the economy.

Since he thinks that three kind of policies promote collectivist approach which encourages centralized planning and that leads to various business cycles such as boom and doom[4].

2.3.2 Effects of the government spending on the growth rates

This research study utilized Ordinary Least Square (OLS) technique. The findings of this research study revealed there is a strong connection aiming capital expenditures and GDP[5]. This research study was carried out in the year 2010 and it used the data from years 1977 to 2008.These research study has showed that there is an inverse relationship between the economic growth and capital expenditures made by the government.

2.3.3 Fiscal policy and economic growth

The rate of GDP growth can be easily influenced by the correct direction of fiscal policy. This factor can be seen through analysing the economic progress of different countries. Moreover, this is the most important pillar of the development economics. The most important components of this policy are balance of payments control, output enhancements, interest rate balance and investment enhancement etc. The traditional view about enhancing the growth is based on the fact economic managers must control the demand side of the economy. Since, it is very important to improve the growth and economic performance of the country. The demand-side orientation of research, has led to create two school of thoughts namely Ricardian equivalence theorem and crowding-out hypothesis[6].

In addition to that, it should be kept in mind that differential alternative economics has no place in the Keynesian models[7]. Since, it mostly focuses on the financial aspects of budgetary policy. In this type of spending government is mostly focused on financing a chosen stream of public expenditure as compared to various kinds of expenditures. This also means that government spending must also generate its maximum revenue from the tax spending of businesses operating within the economy. In addition to that bond financing will also be used to generate revenue during the time of high interest within the economy.
According to the Lynde and Richmond(1993),there is an ample evidence that investment oriented fiscal policy is mostly connected with various growth indices present in the economy[8]. The list of these growth indices include factors of production, costs of production, manufacturing costs, and production costs[9]. However, it should be kept in mind that all these are supply side econometric variables used by the economists.

Additionally, government authorities must keep in mind that it is very important to form a true connection between the private output and state intervention. Therefore, to form this true connection it is very important to increase the productivity of the private businesses and also to improve the investment climate within the economy. It should keep in mind that it will also improve the economic climate and it will help government to reduce the cost of production. Moreover, it will also increase the Profitability of private firms working in the economy.

According to the Kruegcr (1990), alternative government financial policies are not present in Keynesian economics. Therefore, government has to sacrifice the positive growth process for the sake of following the Keynesian economics based policies[10].

According to Kruegcr (1990),government has to suffer various financial failures due to following Keynesian policies. These failures include damages growth prospects, excessive government expenditures, high fiscal deficits and lack of business confidence. The most basic deficiency in this policy is that it fails to include variables such as failure to address the problems faced by the production sector and it also fails to provide answers about the role played manufacturing sector for accumulation of wealth within the economy. Moreover, Keynesian economics has also failed to model the connection between the manufacturing output and the government investment. Since, it is very important to form a relationship between these variables as it will help in estimating the contribution of government investment to the growth.

The analysis done has proved that there is a strong connection between the public investment and various other factors of the economy. The growth induces should be better studies to get maximum results for the advanced and developing economies. Moreover it can be concluded that production in the manufacturing sector, costs, and profits in the economy change with change in the public investment. Since, it has been found out that a higher amount of public investment decreases the costs and improves the profits and reduced levels of output. These kinds of changes in growth output can be recorded in the data set collected during the period of 1980-1992[11].

2.5 Conclusion

Post-Keynesians universally reject the different versions of the neoclassical economy which they consider inappropriate[12]. To analyse modern capitalist economies and their inherent characteristics such as depression, inequality of development, unemployment, economic cycles, technological change; they strive to build an alternative economic theory that is more right. According to them, an institution such as companies, labor, unions, credit contracts, government regulation, and etc. structures the economy. Economic behaviour is largely determined by these institutions, so they give some importance to microeconomic and macro analysis.

At the macroeconomic dimension, the specialists stress that what's to come is fundamentally uncertain. It pursues that people are not maximizing specialists and that they are neither omniscient nor all-powerful, as opposed to what the mainstream claims. The rate of GDP growth can be easily influenced by the correct direction. This factor can be seen through analysing the economic progress of different countries. The most important components of this policy are balance of payments control, output enhancements, interest rate balance and investment enhancement etc. Or maybe, they settle on choices based on general guidance that enable them to deal with arrangement with fragmented and complex information. These standards of behaviours are also intensely affected by social standards and conventions, which can prompt stability (such as, nominal wage contracts that stabilize price levels), just as instability (e.g. model due to gregarious behaviour on the money related markets). Essential vulnerability likewise shapes the behaviour of organizations operating in imperfectly aggressive markets, making them value producers and quality takers[13].

Post-Keynesians views industrializing economies as profoundly beneficial, yet flimsy and conflicting. Financial activity determined by effective interest, which is commonly deficient to generate full employment and full usage of limit[14]. Variances in successful interest are mainly due to changes in speculation spending, particularly residential venture, which is thus emphatically influenced by the operator’s expectations. Because of the fundamental uncertainty about the future expectation of the economic agents influenced by social conventions and the various rules of behaviour. In the midst of for the most part hopeful desires, venture requests can support, and after that trigger a period of solid credit development, capital gathering, and pay age[15]. To finance, investment expenditures, new credits created. At that point, financial yield and work resolved in the product's market as per the dimension as the venture asks. Cash spent on speculation shows up as salary in the store records of different business visionaries or family units. A credit-venture pay part is in this way built up and speculation request makes comparing investment funds. For the procedure of the new investment goods, the income generates stimulated consumer demands. In the event that all goes well when the payment obligation fulfilled when the expectations of the agents confirm the case, and after that economy thrives. Monetary and real factors figure a potential economic equilibrium that assumes KTE. Be that as it may, unexpected changes in desires can bring the economy out of balance. There were phases of solid development because of hopeful desires trailed by uncommon lulls, which are often incited by cynical desires, appropriation clashes or budgetary delicacy. This discourages speculation and customer spending, negates pay desires and initiates a time of default on obligations, and at last financial emergency[16]. These were periods of extension and retreat saw as foundational highlights of financial economies of creation, relieved by establishments and monetary arrangements that help support desires and monetary movement and, in this way, diminishes financial development and vulnerability about what's to come. As indicated by our exploration, work isn't dictated by the work advertises, but instead of the interest for work, itself controlled by a total interest in the merchandise showcase and not by the genuine compensation rate. Be that as it may, the work market decides ostensible wages and in this way the ostensible unit of work costs. This impacts the general dimension of costs and on swelling, just as on to take possession of salary. In contrast to the universal economy, in EPK the value level isn't dictated by, dimension of cash supply, nor is the rate of swelling controlled by the development rate of the cash supply. Therefore, post-Keynesians don't view expansion as a financial wonder[17]. Rather, expansion viewed as the cause of an uncertain distributive clash. This contention brought about by clashing requests on, dispersion of salary among the principal social classes, workers of various parts or ventures, business visionaries and writers (IE people who get paid from the capital, from land resources or budgetary), and the rest of the world in an open economy. For instance, if the genuine pay focus of specialists or associations is in a struggle with the corporate benefit focus on, the expansion in ostensible wages passed on to that of costs, which will prompt swelling if firms have estimating power. While expansion is a standard after effect of the compensation bartering process, even in "ordinary" times, it very well quickened by abrupt increments in the cost of contributions, for instance in view of cash deterioration or currency devaluations[18].

CHAPTER 4: ANALYSIS, DISCUSSIONS AND RESULTS

4.2 First Stage Data Analysis

All variables are measured using data for a period of 1977-2017 except for Debt as percentage to GDP variables, where the data starts from 1988.The Table 4.1 shows the descriptive statistics of the data and the variables. Net taxes and Debt ratio. All these variables are calculated as GDP ratio. The Real GDP has the mean value of 9.71% , capital expenditures has 9.16%, gross fixed capital formation has 26.72%, net taxes has 14.04% and Debt to GDP ratio is 110.54.The higher mean value is of the gross foxed capital ratio which is 26.72%. The median value of Real GDP is 9.68, capital expenditure has 8.02, Gross fixed capital formation has median value of 25.62, net taxes have median value of 13.72 and the debt ratio has median value of 99.64.

Table 4.1: Evaluation of data for descriptive statistics

LRGDP CAPEX GFCAPFORM NETTAX DEBT

Mean 9.714715 9.16524 26.72253 14.04068 110.5487

Median 9.681396 8.026771 25.62031 13.72469 99.644

Maximum 10.06606 18.81518 43.8324 17.17743 219.734

Minimum 9.262356 3.074822 18.27209 12.27213 60.244

Std. Dev. 0.217926 4.267904 5.955852 1.230504 43.05933

Observations 40 40 40 40 29

The highest median value variable is Debt to GDP ratio. The maximum value of Real GDP is 10.06 and minimum is 9.26, maximum value of capital expenditures is 18.81 and minimum value is 3.02. The maximum value of Gross fixed capital formation is 43.83 and minimum value is 18.27, net taxes have maximum value of 17.17 and minimum value is 12.27. The Debt to GDP ratio has the maximum value of 219.73 and minimum values are 60.24. Comparing all the variables, the highest maximum value and highest minimum value is of Debt ratio. The number of observations of debt ratio are 29 and all the remaining variables have the 40 observations. The standard deviation of real GDP is less as compared to all other variables shown in the Table 4.1. The high standard deviation variable is Debt to GDP ratio.

The data helped to categorize the range to which independent economic variables may affect the dependent variables, the highest and lowest values, the distance between the data and the mean, its dispersion as indicated by standard deviation, and the mean of the variables shows its high or low value.

Results of the econometric model, hypotheses test, coefficients among variables (economic growth, internal and external debts, public revenues, public expenditure, exports, and inflation) during the period 1976 to 2017 are also included. Due to the developments in macroeconomics and time series analyses, statistical features of time series become disturbed with the stationary or non-stationary of these series. The present study applies unit root tests, such as the Dicky-Fuller test, to detect whether the data obtained from the variables are stationary or non-stationary.

Lag periods are recognized to find out a variable has a trend that it can be assimilated within various regression processes, when a trend found in the data of variables in an economic model results in the impact of this trend on the coefficients of the other variables. If a time series proves non-stationary at a level, the first difference is measured, and a stationary test is approved again. If it proves non-stationary, the second difference is considered, and so forth, until the time series can be described as stationary. Stationary time series are not found in lag periods higher than the first rate. So, the augmented Dicky-Fuller test for the first lag may not be convenient to show stationary time series. The study uses one type of augmented Dicky-Fuller test that provides the higher lag.

4.2.1 Correlation Analysis

A method of statistical evaluation used to study the strength of a relation between two, continuous variables, numerically measured (e.g. weight and height) is stated as correlation analysis. If there is a possible connection between variables which a researcher wants to establish this particular type of analysis is very useful. It is often misunderstood that cause and effect are determined by correlation.

The ordinary covariance analysis for the real GDP, capital expenditures, gross fixed capital formation, net taxes and Debt ratio has been done. The Table 4.1 shows the probability and correlation between these variables.

Table 4.2: Correlation and the probability matrix between the variables LRGDP, CAPEX, GFCAPF, NETTAX and DEBT

	LRGDP	CAPEX	GFCAPF	NETTAX
CAPEX	-0.726883 (0.0000)
GFCAPF	-0.062504 (0.7474)	0.033565 (0.8628)
NETTAX	0.581132 (0.0009)	-0.462687 (0.0115)	0.296079 (0.1189)
DEBT	-0.822723 (0.0000)	0.613436 (0.0004)	-0.039656 (0.8382)	-0.476724 (0.0089)

The table shows the covariance analysis and probabilities of variables. The covariance between Real GDP and capital expenditures is -0.72 and the probability is less than 0.1 which shows both are highly significant for each other. The highest covariance is between real GDP and Debt ratio which is 0.82 and it is highly significant showing by the probability ratio. The covariance between gross fixed capital formation and real GDP is -0.062 and the probability is 0.74, gross fixed capital formation covariance with capital expenditure is 0.03 and probability value is 0.86. The covariance of debt ratio is strong with every variable and the highest and lowest covariance is with real GDP and capital expenditures.

4.2.2 Stationary Analysis

Financial time series data (such as exchange rate, inflation, GDP, and other macroeconomic indicators) is used by financial institutions and corporations, also by researchers and individual investors in economic forecasts, analysis, studies, or stock market of the data itself. Stationary analysis is one of the most important study for measuring the properties of the given time series. It also plays an important role in making use of data to complete the analysis in a accurate and proper way possible.

In the first step of this analysis we have analysed the time series and measured the relevance of all the given variables. It also helps us to test the stationary nature of given variables. The GDP growth and sector capital expenditures are two most important variables used by our research. Refining data is the key in order to apply it to your stock analysis . The result shows that all the variables are not stationary and extracted stationary by first differencing. The results of the ADF model are estimated with 2 lags. The presence of more lags would have worn the degrees of freedom. The used data covered the period 1977 – 2017.

Table 4.3: Results of Augmented Dickey Fuller test

By applying the test again after including the first difference, these variables became constant. Thus, the time series of the study an integration of order I. According to Engle and Granger (1987), in order to perform a co-integrated test, all variables must have the same stability as that which appears from the variables of the first model.

4.2.3 Multiple Regression Analysis - Long-run and short-run dynamics of Economic Growth

Regressions are very important while quantifying an economic relationship between two variables. It is very effective while determining closeness of relationship between two economic variables. The closeness of two variables is very important for the future economic planning of any country. In our analysis regression analysis helps us to determine closeness between important variable such as GDP growth, capital formation and GDP growth.

. The long run and short run relations are calculated in the Table 4.4.

Table 4.4 shows that the short run relationship exists between real GDP and capital expenditures and that relationship shows that they are equilibrating.

Table 4.4: Short Run results

Independent variable	F-statistic	Minimum critical value	Maximum critical value	Result
CAPEX	9.47365	7.46	8.27	Equilibrating relationship exists
GFCAPF	3.1886	7.46	8.27	No Equilibrating relationship exists
NETTAX	4.661686	7.46	8.27	No Equilibrating relationship exists
DEBT	72.46238	3.88	4.92	Equilibrating relationship exists

The results of the long run coefficient of the ARDL model show that the capital expenditures and debt to GDP ratio affects significantly and long run relationship exits. The estimated coefficients of the long run relationship show that economic growth has a very significant impact; the coefficient is positive and statistically significant except net taxes it is negative or insignificant.

Table 4.5: Long-run coefficients of the Autoregressive distributed lag (ARDL) model

Independent variable	Long-run coefficient	Std. Error	t-Statistic	Prob.
CAPEX	0.02195	0.007861	2.792256	0.0097
GFCAPF	0.001986	0.00242	0.820749	0.4179
NETTAX	-0.01826	0.018884	-0.96707	0.3412
DEBT	0.053341	0.004254	12.53837	0

4.2.4 Cusum Model Stability Test

The figures showing that Cusum model stability test of the ARDL models of LOG GDP and the dependent variables.

4.2.4.1 Capital Expenditures

Capital expenditures also known CapEx are financial money utilized by the country to maintain and acquire physical assets present in the overall economy. The list of physical assets includes buildings, property, real estate, equipment, technological assets etc. The expenditures on maintenance and upgrading of these assets are also included in the CapEx expenditures.

CapEx analysis has helped us to analyse various new and beneficial projects undertaken within economy through making capital investments. CapEx investments are also made companies to increase and maintain the economic scope of any company. CapEx investments in the economy also include purchasing a piece of physical equipment, repairing a roof and building a new factory. The scope of the economy can easily be increased through making these kinds of investments throughout the economy. CapEx is often used to undertake new projects or investments by the firm.

Fig. 4.1 shows the Growth of GDP. The GDP growth is instable as the blue line crosses the 5% significance level (critical lines).

Fig.4.1: ARDL (3,4) for LogRGDP and capital expenditures as % GDP

4.2.4.2 Gross Fixed Capital Formation

Capital good formation is one of the most important factors for the economic growth. This is one of most important things extracted from theoretical attribute . This assertion is observed both in theoretical and empirical literature. Our study also proves that capital accumulation contributes to improve various level of production within an economy. The endogenous growth theory was created by Romer and it is also applied in this study. Our analysis has also proved that research, infrastructure, human capital, infrastructure, and development helps in accelerating the gross capital formation. This thesis is supported by many previous studies made by economic analysts like Romer. The growth supported by the capital formation is aided by investment projects taken place within construction, public works and extractive industries.

Fig. 4.2 shows the gross fixed capital formation. It shows that in the start the GFCF is stable and when move upward it become instable as shown in the graph (Fig. 4.2). The blue line representing the GFCF crosses the red line (Critical lines) indicating the instability.

Fig. 4.2: ARDL (2,1) for LogRGDP and Gross Fixed Capital Formation as % GDP

4.2.4.3 Net Taxes

Taxes are most important components of any economy. The taxation structure and amount helps us to measure the strength of any economy. The net taxes analysis helps us to measure the total tax burden as compared to the overall economy.

The stable tax bases are very important for getting good measurements for any economy as they help in getting good results for any economy. Our analysis also helped us to calculate the disaggregated structure of taxation matters for long term economic growth.

Our analysis also proves that high tax rates are very harmful for the economy and that can really create managerial and economic problems for the country. Advanced economies always try to impose low rates of taxes for businesses as it helps them to flourish in the short and long term. In addition to that various studies have proved that sometimes empirical evidence distorts the long term and short growth projections of the economy.

Fig. 4.3 shows the Net taxes, which is stable because the blue line lies under the critical lines. The plots and test results at the command line indicate that neither test rejects the null hypothesis that coefficients are stable.

Fig. 4.3: ARDL (3,1) for LogRGDP and Net Tax on Production as % GDP

4.2.4.4 Debt to GDP ratio

Fig. 4.4 shows Debt to GDP ratio and the coefficients are stable because it lies under the critical values and 5% level of significance. The debt-to-GDP ratio is a very essential metric for any economy. The debt to gdp ratio is a ratio of public debt to gross domestic product of the country. Our debt to gdp ratio analysis helped us to measure the country's capacity to pay back all its debts within the given Frame of time. This ratio can also used to measure the years a country will take to payback its all debt by utilizing all its gdp for the debt repayment exercise. Since this is one of the important principles of the Keynesian economics.

Modern economists believe that country should dedicate certain amount for the debt repayment as it will help it to maintain certain growth rates in next few years. It must be noted down that high debt to GDP ratio can be harmful for the country as it will eat up most of the GDP produced by the country in the given year.

Fig.4.4: ARDL (1,1) for LogRGDP and General government gross debt as % GDP

4.3 Second Stage Data Analysis

	Sector Gdp Growth	Sector Capital Exp
Mean	4.392705	44.29575
Median	4.604988	14.75206
Maximum	55.1124	661.5051
Minimum	-46.0311	-3.85667
Std. Dev.	10.78537	77.71227
Observations	264	264

4.3.1 Correlation Analysis

The dependency between two features of an object (material, process, ...) are examined with the correlation and regression analysis ( multivariate analysis method ).

If there is a functional relationship between x and y, then a sample correlation coefficient r can be given, which is an estimate of the "true" parameter ρ (Rho). The correlation analysis examines correlations between random variables on the basis of a random sample. A method of statistical evaluation used to study the strength of a relation between two, continuous variables, numerically measured (e.g. weight and height) is stated as correlation analysis. If there is a possible connection between variables which a researcher wants to establish this particular type of analysis is very useful. A measure of the strength and direction of a linear correlation is the correlation coefficient r . If r 2 = 0 there is no correlation. The coefficient of determination thus represents a measure of the quality of the adaptation.In addition to the assessment of the coefficient of determination by approximation to 1, the t-test is suitable for testing the statistical significance of the assumed relationship between the characteristics x and y.

4.3.2 Stationary Analysis

Pedroni Residual Cointegration Test between Sectors GDP growth and sectors capital expenditures:

			Weighted
	Statistic	Prob.	Statistic	Prob.
Panel v-Statistic	3.492483	0.0002	0.09222	0.4633
Panel rho-Statistic	-10.7059	0	-9.31612	0
Panel PP-Statistic	-10.7722	0	-10.4872	0
Panel ADF-Statistic	-4.91388	0	-5.9378	0

Augmented Dickey-Fuller results (parametric)

4.3.3 Multiple Regression Analysis - Long-run and short-run dynamics of Economic Growth

1- Long-run coefficients of the Autoregressive distributed lag (ARDL) model:

Independent variable	Long-run coefficient	Std. Error	t-Statistic	Prob.
sectors capital expenditures	0.006193	0.006159	1.005609	0.3157

2- Speed of adjustment of errors in equilibrium (short run coefficient ) between Sectors GDP growth and sectors capital expenditures:

4.3.4 Cusum Model Stability Test

The figures showing that Cusum model stability test of the ARDL models of Sectors GDP Growth and the dependent variable (Sectors Capital Expenditures)

4.4 Third Stage Data Analysis

4.4.1 Correlation Analysis

The correlation analysis is done between contribution to GDP growth and contributions to capital formation growth.

This analysis is made on 264 observations. There is huge difference between the standard deviation of contribution to GDP growth and contribution to Capital Formation growth. The standard deviation for gdp growth is 0.87 as compared to the 5.96 standard deviation of the capital formation growth. There is huge difference between the mean and median of the contribution to GDP growth and contribution to, Capital Formation growth. The mean of the GDP growth is 0.35 as compared to mean 1.05 of the capital formation growth.

here is huge difference between the mean and median of the contribution to GDP growth and contribution to Capital Formation growth. The median of the GDP growth is 0.26 as compared to mean 0.24 of the capital formation growth.This data has been applied to the various sectors of the economy such as construction, electricity etc,

4.4.2 Stationary Analysis

Stationary analysis is one of the most important study for measuring the properties of the given time series. It also plays an important role in making use of data to complete the analysis in a accurate and proper way possible.

In the first step of this analysis we have analysed the time series and measured the relevance of all the given variables. It also helps us to test the stationary nature of given variables. The GDP growth and sector capital expenditures are two most important variables used by our research. The research given in the Table proves that most of the variables are stationary as calculated though first stationary test. All the tests have Elon reasonable degrees of freedom.

The application of the second test shows that most of the variables are not constant. Since, this test is done with the integration of the order I. The test of the order 1 is performed and it has proved that all the variables don’t have same level of stability as compared with each other.

4.4.3 Cointegration test

Co-integration is a very important thing for analyzing various kinds of economic variables. It is mostly used to measure the long term connection between the various kinds of economic variables of any country. Co-integration is used mostly for poorly predictable economic variables. This can be categorized with the error correction model for making long term and short term changes within any economic model. This can be seen for measuring various kinds of variations for short term dependence on the economic variables within the time series. Pedroni Residual Cointegra tion Test : sectors contribution to GDP growth and sectors contribution to Capital Formation growth are cointegrated as the following result:

The pedroni residual co integration test conducted by our team there is a negative relationship between various variables our study. Since, this test shows that most of the time statistics and probabilities have brought a negative result. This negative results shows a inverse relationship between GDP and various other sectors of the economy such as agriculture, industry, services etc.

This Co integration test sheds light on the number of cointegration relationship and its functional form by following different criteria:

- The criterion of the trace and minimum eigenvalue

- The information criteria

We performed the cointegration test based on the comparison the likelihood ratio to its critical value. The assumption of the test is formulated as follows:

H0: There is a cointegration relationship;

H1: There is no cointegration relationship.

4.4.4 Regression Analysis

The regression analysis was started in 19th century to make use of economic data to know relationship between various variables. The future technological revolution helped experts and scientists to create regression analysis for economic use. Scientists utilized various electronic calculators to create regression analysis through spending money and punching computer cards. One wrong punch would cancel the whole attempt to create regression analysis. It is very essential for operating lots of regression analysis for future economic analysis. The regression analysis adjusts the dependency between two features (see also multiple linear regression ) of an object of a regression equation:

If there is a linear relationship between y and x - y is the dependent (random) feature and is referred to as the target variable, the feature x is the independent variable (influencing variable) - we speak of linear regression :

y = a + bx

The parameters a and b are calculated (estimated) from the feature data x and y according to the method of least squares (also called least squares estimation or KQ estimation for short).

Conclusion

We have conducted long run, short run, cusum analysis, stationary analysis and bound test results. Its real function is to answer in a synthetic way your initial question, to specify to what extent your hypothesis has been confirmed or invalidated. It frequently leads to a reformulation of initial questioning. This method of complex mathematical calculations is based on probability formulas, adapted to the financial system. It then becomes possible to evaluate the value of financial instruments and their derivatives. This system helps finance professionals better manage their portfolios. They can then minimize the risks while retaining the same profits . This is multivariate statistical analysis technique to explain the behaviour of a variable (explained or dependent) using other variables (explanatory or independent). This analysis has showed there is a strong connection between the GDP and various other important variables such as Forestry and Fishing , mining and Quarrying. This analysis will also help me to understand the future use of Quantitative analysis in the future analysis of GDP. The GDP growth is positively related with various economic sector variables such as agriculture Forestry and Fishing ,mining and Quarrying ,manufacturing ,electricity and Water, construction, wholesale & Retail Trade, Restaurants & Hotels ,Transport, Storage & Communications ,producers of Government Services, community, Social and Personal Services, finance, Insurance, Real Estate & Business Services ,Producers of Private Non - Profit Services to Households. The presentations of the methods and notions are accompanied by concrete examples, resulting from real surveys. All elements are provided to understand, analyse and produce data, whether in sociology or in the fields of studies, marketing, opinion polls or behavioural surveys.

CHAPTER 5: Conclusion and Recommendations

5.1 Introduction

In Chapter 4 statistical data analysis was carried out using regression analysis.. In Chapter 5, conclusions will be highlighted followed by recommendations from this research.

5.2 Conclusions

5.2.1 Role of Government legislation in improving economic growth

5.2.2 Government increased its capital expenditures to improve the country’s developmental needs

What influence does government spending have on growth of the economy was considered by Laudau for 96 countries. The inverse relationship was seen between government spending and economic growth. After studying about the economy of Thailand, Brahmasrene and Kormain undermtook some tests to determine causality. No direct correlation was seen between the two in the results but specified a casual connection. The reason was that this kind of instigation is very important between the government expenditure and growth of the economy.

Barro determined the relationship of spending on investment and other high yielding practices as positive while that of government expenditure leading to cascading effect.

We all know, economy as a whole is managed by the government by the usage of public spending. This further elevates the growth in the economy. Other significance of government consumption incorporates the arrangement of those offices that are not secured by the market economy.

Human capital advances high advantage related with monetary development, however the budgetary source for public use which is the tax collection lessens the advantages of the citizens and in that capacity diminishes the advantages related with financial development.

In practical literature there are always two sides, half of the researchers (Gupta et al., 2002), believing that no such influence of government spending occurs on economic growth while a few assumed that there is a negative relationship among the two (Folster and Henrekson, 1999).Some also supposed the relationship to be insignificant.

To attain justifiable development, economic growth is a fundamental element where money spent on assets is called capital spending. It is the buying of things that will last and will be utilized over and over again in providing products and services such as construction of a hospital, buying new instruments, replacing broken roads and much more. In the provided original paper, absolute capital government spending rate will be proxied by total capital government expenditure separated by GDP. The rate shows an impression of government capital usage that tends to improve economic development in Nigeria.

In the past few years, half of the policy advisors believe that development of the government sector advances toward the growth of the economy while others presumed it to be hindering the economic growth. Government supporters’ viewpoint it that governmental policies help to provide the luxurious necessities for example Education and infrastructure development.

A government department can continue doing its work despite of not having its need. Its managers and the relevant officer will not easily give away its authority. The outcome is redundant products, squandering faculty, which could give way to production that gives prosperity and advantage to people in the economy.

Also, they threaten that growth strategies are hindered by the expansion of government department because the opponents can utilize the presence of budget deficits with an opportunity restrict policies which would further help in building up the economy. To see which side of the argument has more weight, this research scrutinizes the influence of government spending on economic growth from 1987 to 2010. The findings of this article depicts that government spending had both positive as well as negative effects on the growth of economy and capital spending had an inverse and non-significant relationship with economic growth. [20].

5.2.3 Capital expenditures has positive and significant impact on economic growth

Our research has found out that various kinds of expenses such as housing, community, health and capital expenditures etc directly affect the economic in countries like Jordan. However, it is also true that current expenses like expenditures on education and social communities not directly affect the economic growth of countries like Jordan. This is also close to the analysis made by the Akpan’s (2005). He believes that there is a very good connection between the components of the economic growth and various kinds of government expenditure. According to the Olopade and Olepade (2010) there is no strong connection between various aspects of the economic growth and public expenditures. However, this analysis truly close to the comments and claims made by the Ogiogio (1995) who believed that current expenditures play more influential role than the capital expenditure for affecting the economic growth of countries like Jordan. In addition to that experts like Abu Al-Foul and Al-Khazali (2003) believe that economic growth can really affect the growth of rich country like Jordan. Since, it is a known fact that government expenditures always helps in improving aggregate income level of a country. Since, it always leave a positive effect on the growth of the GDP and that is very close to the arguments made by Keynes. The collective effect of the above mentioned components is successfully proved through F-Statistic and its probability[21].

Therefore, it can be said that this research study proves that public expenditures improves the income level through flow of money all inside the economy. Moreover it can be said that variables used in the above mentioned economic models correctly explain the 93 % and 98 % variations in the data used during our research. In addition to that, it should be noted that all determinants of growth are present in the public expenditures and also in the Keynesian model of growth.

According to the Lynde and Richmond(1993),there is an ample evidence that investment oriented fiscal policy is mostly connected with various growth indices present in the economy[22]. The list of these growth indices include factors of production, costs of production, manufacturing costs, and production costs[23]. However, it should be kept in mind that all these are supply side econometric variables used by the economists.

5.3 Recommendations

5.3.1 Policy makers should take guidance from this research work to formulate fiscal approaches aimed at improving the economic growth of the country.

5.3.2 Policy review on the allocation of public expenditures among different components of Jordanian government expenditure should be done taking inspiration from this study.

5.3.3 The examination of sectorial budgetary allocations should also be done based on the guidelines of this study.

5.3.4 The findings of this study will act as preliminary guidance for further examination of the subject.

5.3.5 Being a small economy, Jordan’s underdeveloped infrastructure in some of the sectors that do not have proper infrastructure and in many other sectors in which the infrastructure have seriously deteriorated should modernize the infrastructure and improve it.

5.3.6 The government’s capital expenditures should be spent to enable providing public services like infrastructure.

5.3.7 The findings of this research should be used in making improvements in Jordan’s fiscal, monetary policies.

data Darbaar

Saturday, 13 July 2019

Jordan