The impact of fiscal deficit on economic growth: An empirical study in selected MENA countries

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Abstract

The purpose of this article is to investigate how the fiscal deficit affects economic growth in five Middle Eastern and North African (MENA) countries: Bahrain, Algeria, Egypt, Morocco, and Jordan. These economies are bewildered by their high deficit levels, and their weak investment growth keeps them from achieving economic growth. This investigation, which spans the years 1995 through 2020, uses the ARDL (autoregressive distributed lag) methodology. The author selected four variables for this study: economic growth serves as the dependent variable, while the set of independent variables includes economic growth (GDPG), gross fixed capital formation as a percentage of GDP (GFCF), deficit as a percentage of GDP (DEFICIT), and inflation (INF). The long-run results showed that there is a negative link between economic growth and deficit; however, a positive relationship existed between inflation and economic growth. Gross fixed capital formation did not show any significant relationship with economic growth in the long run. In the short run, the results showed that inflation has a negative relationship with economic growth. The remaining variables, deficit, and gross fixed capital formation did not show a significant relationship with economic growth.

Keywords: Fiscal Deficit, Inflation, Gross Fixed Capital Formation, Economic Growth

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: E62, H3, H61, H62, H63

Received: 15.06.2023
Accepted: 02.02.2024
Published online: 06.02.2024

How to cite this paper: Kassem, J. (2024). The impact of fiscal deficit on economic growth: An empirical study in selected MENA countries. Journal of Governance & Regulation, 13(1), 223–230. https://doi.org/10.22495/jgrv13i1art20