Technology Gap and the Mutual Impacts among Economic Gaps in Jordan: an Econometric Analysis 1973-2016

Abstract

This study aimed to estimate the size and direction of the technology gap in the Jordanian economy and the interrelationship between the economic resource gap, the private savings gap, and the government savings gap. It also aimed to estimate the impact of each of these gaps on economic growth. To achieve the study’s objectives, a simultaneous econometric model was developed including three behavioral equations, seven external variables, and three internal variables. The model was estimated using the method of Two-Stage Least Squares (2SLS). The results showed that the economic resource gap had a positive and statistically significant effect on the real GDP growth rate, in contrast to the effects of the private savings gap and the public savings gap which were negative. The results also provided empirical evidence showing that the relationships between the gaps were reciprocal, not compensatory, as the government savings gap recorded the highest reciprocal effect. In addition, the estimated technology gap showed the size of the technical progress needed to achieve the potential production in case of full capacity utilization. Based on the results, the study recommended that Jordan adopt a prudent fiscal policy to narrow the government savings gap, and thus stimulate economic growth.