Abstract

Objectives: This study aimed to analyze the impact of external borrowing and foreign aid on both types of government expenditure: the current and the capital expenditure in Jordan during the time period (1980-2019). Methods: Using the Autoregressive Distributed Lag model (ARDL). Results: The results showed that the effect of external borrowing on capital expenditure was negative in the long run while its effect was positive on current expenditure, but it was not statistically significant, while in the short run, the effect of external borrowing was positive and statistically significant on both capital and current expenditures. As for foreign aid, it had a positive and statistically significant impact on capital and current expenditure in the long and short term. Conclusions: The study recommended channeling the largest amount of external borrowing and foreign aid to capital expenditure through productive projects that develop the national economy, as well as increasing the reliance on local resources by focusing on national productivity and diversifying it to finance current expenditures. The paper also recommended controlling unjustified current expenditures and working to increase the share of capital expenditures.