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THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.78, # 1, 2021, pp. 27-39



                    Table 2: Dynamic Panel Data System estimation for equation 4
                                   L. Gov.S   FDI    ODA      Open   Constant   chi2

                        Gov.S      .97*      -.007**  .017**   .013*   -.36**   631.99*
                                   (23.44)   (-2.55)   (2.05)   (3.21)  (-2.07)
                        Long-run       -     -.23    .57      .43    -
                        coef.
                                                     H0: overidentifying restrictions are valid   125.67* *
                    Figures in parentheses are z statistics. The symbols *, **, *** indicate significance at 1%,
                    5%, and 10% levels respectively.

                    Table  2  shows  model  2  estimation  for  equations  4.  It  shows  a  robust  model,  all
                    variables coefficients are significant at 1% or 5%. Furthermore, as shown in table 2,
                    Sargant  test  shows  that  all  moment  restrictions  are  satisfied  for  the  dynamic
                    specifications can't be rejected. This means that the instruments are valid for model,
                    model  is  robust  and  correctly  specified.  All  signs  are  in  accordance  with  the
                    simultaneous analysis.

                    The lagged variable of government size shows that government behavior and size is
                    mainly  determined  by  previous  size.  This  in  fact  true  as  long  as  government
                    expenditure determined by government decision. FDI doesn’t provide easy resources
                    to  government,  meanwhile,  it  replaces  imports,  decrease  openness  and  increases
                    country size in term of increasing economic units such as employees and firms, and
                    therefore, it tends to decrease government size.

                    ODA  associates  positively  with  government  size,  which  means  ODA  makes
                    government  expenditure  grows  higher  than  GDP  growth,  i.e.  government  size
                    grows. This point out that ODA enhances consumption behavior in government and
                    finance  public  budget  for  the  current  expenditures,  as  long  as  government
                    expenditure grows  faster than GDP  growth.  In  addition,  this  changes  government
                    behavior toward consumption, transfers and imports, Sabra, (2021), either financed
                    by  local  revenues  or  aid.  This  is  because  of  the  rent  seeking  behavior  and  aid
                    dependency.

                    Finally, openness works to increase government size, which plays a stabilizer role
                    against the external shocks. In addition, as long as ODA reduces trade barriers and
                    increases imports that increase openness, hence, both ODA and openness have to
                    associate positively with government size.





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