Jordan Journal of Economic Sciences

Analyzing the Optimal Size of Government Expenditure in Jordan: Between Theory and Practice

AHMAD AL-MAJALI — 2026-01-01

Introduction: The optimal size of government expenditure is a key issue in public finance and growth theory, especially for developing economies under fiscal and structural constraints. While public spending supports public goods provision, macroeconomic stabilization, and social cohesion, excessive expansion beyond an optimal threshold can hinder growth through inefficiencies, crowding-out effects, and fiscal sustainability risks. The literature reflects this debate, ranging from Wagner’s Law and Keynesian demand-side arguments to recent endogenous growth and non-linear models that suggest an inverted-U relationship between government size and economic growth. In Jordan, government expenditure has long accounted for a high share of GDP due to structural problems and foreign shocks. Despite this, growth has remained modest alongside rising deficits and public debt, raising the question of whether spending has surpassed its growth-enhancing level. Existing empirical evidence for Jordan is limited and inconclusive. This study addresses the gap by estimating the optimal size of government expenditure using a long quarterly dataset and multiple non-linear econometric approaches, aiming to identify the growth-maximizing threshold and derive policy-relevant insights to enhance fiscal efficiency and sustainability.

Methodology: The study uses quarterly data for Jordan over the period 1976–2023 to examine the relationship between real GDP and government expenditure as a share of GDP. To account for non-linearities and threshold effects, three complementary econometric approaches are applied: the Scully model to estimate the growth-maximizing level of government expenditure within a long-run VECM framework, the Armey curve in a quadratic form using quantile regression to capture heterogeneous growth effects, and a discrete threshold regression model to identify expenditure levels at which the impact on growth changes.

Results and Discussion: Across all three methodologies, the findings converge on a clear and robust result. Government expenditure supports economic growth in Jordan up to a threshold of around 28% of GDP; beyond this level, the marginal effect of additional spending becomes statistically insignificant and then negative. The Scully model estimates an optimal expenditure ratio close to 28%, confirmed by Delta-method significance tests. Consistently, the Armey Curve yields a growth-maximizing share of about 28.4%, validating the inverted-U relationship, while the threshold regression identifies a structural break at 28%, with positive growth effects below and significantly negative effects above this level. Overall, the results indicate that Jordan’s recent average government expenditure ratio (approximately 30%) slightly exceeds the growth-enhancing optimum.

Conclusion: The results confirm a non-linear relationship between government expenditure and economic growth in Jordan, with growth weakening once spending exceeds its optimal level due to efficiency losses, crowding-out effects, and rising fiscal pressures. Rather than advocating across-the-board cuts, the findings highlight the need to improve the composition and efficiency of public spending by shifting resources toward productive investment, infrastructure, and human capital, while keeping expenditure close to its growth-enhancing level and encouraging future research to examine the effects of different spending components.

DEA-Malmquist Method to Analyse Total-Factor Energy Efficiency for GCC Countries

Reema Gh. Alajmi — 2026-01-01

Objectives: Carbon dioxide emissions are primarily produced as a result of energy consumption, and improving energy efficiency is a critical component in mitigating the effects of climate change. Total energy consumption in the GCC countries is expected to rise from 238.8 million tons in 2000 to 584 million tons in 2023. This study aims to assess the Total-Factor Energy Efficiency (TFEE), which influences energy efficiency in the GCC countries. Three inputs were used—labor, capital stock, and energy consumption—to evaluate energy efficiency in two key sectors: the transportation sector and the electricity sector.

Methods: Data Envelopment Analysis (DEA) and the Malmquist Productivity Index were employed to measure energy efficiency in two models: the first model for the electricity sector, and the second model for the transportation sector in the GCC region.

Results: The findings of the study reveal a general decline in energy efficiency across the GCC countries in both the electricity generation and transportation sectors. In the electricity model, the Total-Factor Energy Efficiency (TFEE) decreased by 3.9%, driven primarily by a 4% drop in technological change, although technical efficiency exhibited a slight improvement of 0.1%. Similarly, in the transportation sector, overall energy efficiency fell by 2.9%, largely due to a 2.8% reduction in technological change, accompanied by a marginal 0.1% decline in technical efficiency growth. Together, these results indicate that deteriorating technological progress is the main factor behind the downward trend in energy efficiency across both sectors.

Investigating the Dynamic Relationship between the Blue Economy and Economic Growth in Jordan: A Time-Series Econometric Analysis

Radi Al-Adayleh — 2026-01-01

Objective: This study seeks to investigate the dynamic relationship between the blue economy and economic growth in Jordan during the period (1982–2023), with the aim of identifying the extent to which blue economy activities contribute to supporting the path of sustainable economic growth and strengthening its foundations.

Methods: The study employs the Autoregressive Distributed Lag (ARDL) methodology to estimate the short‑run and long‑run relationships among the research variables. Unit root tests are conducted to verify the integration order of the variables and ensure the validity of the econometric modeling.

Results: Unit root test results indicate that the variables under study—total fish production (TFP), aquaculture production (AP), the agriculture, forestry, and fishing sector (AFF), trade volume (TRD), and economic growth in Jordan (LNEG)—are integrated of orders I(0) and I(1), confirming the suitability of the ARDL approach for this analysis. The econometric results reveal a statistically significant long‑run equilibrium relationship for aquaculture production, the agriculture–forestry–fishing sector, and trade volume, each demonstrating the expected positive effect on economic growth. In contrast, total fish production is found to have a negative impact on economic growth. This is attributed to its limited contribution to GDP, due to the small size of Jordan’s water resources (restricted to the Gulf of Aqaba), the country’s heavy reliance on imported marine products, and the weak linkage with value‑added manufacturing industries such as canning, freezing, and export processing—factors that reduce the multiplier effect of these activities on the broader economy. Furthermore, the results of the CUSUM and CUSUMSQ tests confirm the structural stability of the model throughout the study period.

Conclusion: The study concludes with a recommendation to expand investment in the development of sustainable aquaculture, strengthen related manufacturing industries, and reinforce policies for marine resource protection. Such measures are essential to enhancing the contribution of the blue economy to stimulating sustainable economic growth and improving its overall capacity in Jordan.