Date of Award:

1998

Document Type:

Dissertation

Degree Name:

Doctor of Philosophy (PhD)

Department:

Economics and Finance

Advisor/Chair:

Basudeb Biswas

Abstract

This dissertation examines the role of foreign aid in economic growth and development of Jordan. The flow of foreign capital takes two main forms: private foreign investment, mostly foreign direct investment by large multinational corporations, and public development assistance (foreign aid) from both individual national governments and multinational donor agencies. The distinguishing characteristic of foreign aid is the concessional element. In this dissertation, recent techniques and advances in time-series analysis are used in the empirical section of Chapters 2 and 3, i.e., vector autoregression (VAR), impulse response functions, and variance decompositions. In the fourth chapter, we use a nonlinear three-stage least square estimate to test the impact of foreign aid on the fiscal behavior of Jordanian government.

The results of this study indicate that foreign aid in its aggregated form exerted an overall short-run positive dynamic impact on Jordanian growth rate of output, while it had a severe and long-run negative dynamic impact on domestic saving rate. When foreign aid is decomposed into its two main components, i.e., foreign aid grants and foreign aid loans, we found that grants exerted a long-run positive dynamic impact on Jordanian output growth and a severe long-run negative impact on its domestic saving rate. On the other hand, foreign aid loans had a positive but short-run impact on output growth and a positive long-run dynamic impact on domestic saving rate. We also found that foreign aid significantly affects both the revenue and expenditure side of the Jordanian government budget.

Foreign aid grants positively affect consumption expenditures while foreign loans had no significant impact on government consumption. We also found that tax revenues in Jordan are mainly used to finance public consumption expenditures and not public investment. Furthermore, in the presence of foreign aid (grants and loans), an increase in taxes leads to an increase in public consumption expenditures and vice versa. Finally, the results show that in the presence of foreign aid, the Jordanian public sector reduces its efforts to collect taxes.

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