1. Aaron Cupp
Jordan Report
ECON 3004
3 May 2016
The first major kingdoms in Jordan formed in part to maximize trade. Prior to the Iron Age
(1200-400 BCE), numerous city-states ruled the area. Gold, spices, and metals from Arabia came
through Jordan, making it an extremely valuable trade route. Three kingdoms would form from these
city-states, providing better protection along trade routes as well as increased trade productivity. Edom
would rule the south, Moab would rule Central Jordan, and Ammon would rise to power in the north.
The kingdom of Ammon was very successful with trading, as its location in the fertile Jordan Valley
allowed for the development of agriculture. It would be southern Jordan, however, that would
experience an economic growth that would affect Jordan for the next hundreds of years (History, n.p.).
During the sixth century BCE a nomadic tribe, the Nabateans, migrated to the southern part of
Jordan from Arabia. Petra, the now-famous tourist attraction, became their capital as well as a
commercial hub between the Far East, China, Greece, and Syria, among others. The Nabateans were
not only great merchants, but also great engineers. They developed a network of canals, reservoirs, and
dams. With the expansion of sea trade routes, Petra’s significance declined into the fourth century BCE.
Once the Nabateans mysteriously left Petra, Jordan was then ruled by numerous empires for close to
2,000 years (History, n.p.).
Starting in 63 CE, the Roman Empire would rule Jordan for about four centuries. During that
time there was cultural tension, but overall it was a peaceful relationship. In fact, a lot of infrastructure
developments occurred that improved the trade routes running through the area. Jordanian cities

2. prospered, as far as population and economic growth, until the plague of 542 CE. The area was
susceptible to an outside force because of the significant loss in population over the next one hundred
years (History, n.p.).
The Umayyad Empire moved into Jordan in 661, and started yet another period of growth for
Jordan. Close proximity to the Umayyad capital of Damascus provided Jordan with the ideal route for
Islamic pilgrimages to the holy sites in Arabia. The growth of the Umayyad Empire was marked by new
construction throughout the area. It was not until the Ayyubids and Mamluks that infrastructure was
rebuilt, and trade routes re-fortified. The Ayyubids and Mamluks came into power around 1260 CE after
fighting off a Mongol invasion from the East. During this time, sugar production rose as water mills were
heavily used in the Jordan Valley. In 1516, the Ottoman Empire would take over Jordan, leading the
area to be heavily influenced by outside powers for the next four hundred years (History, n.p.).
When examining the economic history of the Middle East, an unfortunate theme regarding
foreign influence presents itself. For example, Egpyt and Iran saw their long-run growth hindered as
outside powers were only concerned with the extraction of natural resources. Jordan was no exception
to this rule, as the Ottoman Empire ruled the area from 1516-1918. The little infrastructure
development that came about was primarily for pilgrimage route to Mecca. The Ottomans constructed
churches, schools, and hospitals solely for religious purposes. Jordan would see a decline in population
and stagnation in economic development during the rule of the Ottoman Empire (History, n.p.).
Following World War I and the Sykes-Picot Agreement, Britain was rewarded a mandate over
Transjordan, Palestine, and Iraq. In 1923, Britain would agree to recognize Transjordan as a state, and
begin to prepare it for full independence. Transjordan would spend the next twenty-three years
centralizing its government and introducing a constitution. The Hashemite Kingdom of Jordan would
become a fully-independent state on May 25, 1946. It would not be until the 1960s, however, that

3. Jordan would experience significant economic growth. The decade of the 1950s caused much turmoil,
as the Israel-Palestine conflict caused much strife throughout the region. Also, Jordan sought to
maintain a democratically liberal government; but radical parties with pan-Arabian desires often won
most elections. Fortunately, Jordan was able to survive and set itself up for great economic expansion in
the 1960s (History, n.p).
Jordan experienced many milestones in the early 1960s. A new public education system was
established, as well as a network of highways. The country’s first national university was opened in
1962. Some industries that grew include the phosphate, potash, and cement industries. The tourism
that came from various religious landmarks should also be noted (History, n.p.). According to the World
Bank, the average yearly population growth for Jordan was 5.8% from 1960 to 1967. The Arab World,
which includes Jordan and 21 other states, only experienced an average yearly population growth rate
of 2.8%. The infant mortality rate also fell 32.8% during this time, from 156.4 deaths per 1,000 births to
105.1 deaths per 1,000 births (World, n.p.).
This stability would be short-lived. The Six Day War of 1967 sent 300,000 refugees into Jordan
as the West Bank was lost to Israel. Sixty percent of Jordan’s fruits and vegetables were produced in the
West Bank, and thirty-eight percent of the country’s GNP came from the region. As Jordan recovered
into the 1970s, there was again economic growth. In 1989, Jordan would return to parliamentary
politics, and hold its first democratic elections since 1967 (History, n.p.). More recently, Jordan has
agreed to deals with countries such as Egypt and Israel for infrastructure projects worth billions of
dollars (Jordan Profile, n.p.).
When investigating modern economic growth in Jordan, starting at 1990 seems like an
appropriate benchmark. It was in 1989 when the country returned to parliamentary politics and
restarted the election process. Economic liberalization took place and regional conflicts were beginning

4. to settle. It should be noted, however that the Gulf War of 1991 did negatively impact Jordan. It was
once again flooded by refugees, and oil workers in foreign countries were forced to return home.
Nevertheless, Jordan began to show signs of economic growth once political reform took place in 1989
(History).
Jordan’s GDP per capita has seen a 63% increase since 1990, going from $7,057.46 in 1990 to
$11,496.26 in 2014. The Arab World, composed of the countries that make up the League of Arab
States, only experienced a 51% increase during the same time period. The Arab World’s GDP per capita
in 2014 was $15,248.10 (World, n.p.).
According to the Harrod-Domar model of economic growth, a country must save more to
ultimately increase output. If more money is saved, more money can be invested in new physical
capital. Additionally, it can be used to repair old, broken-down capital. The end result of this increased
stock of capital is, of course, additional output (Salehi, Isfahani, 2).Jordan’s gross domestic savings rate
has been historically low, especially compared to the rest of the Arab World. From 1990 to 2014, the
average yearly savings rate has been just 0.92% (% of GDP). It has experienced negative savings rates as

5. recently as 2013. The 2014 rate was 2%, significantly less than the Arab World rate of 36%. In 1990
Jordan’s rate was just 1%, so savings has not had a major impact on the growth of the last 25 years
(World, n.p.).
Saving is not the only source for capital growth. A country can use foreign borrowing to invest
in new capital. The World Bank defines this as the external balance on goods and services. This balance
for Jordan, measured as percentage of GDP, has been negative every year since 1976 when the data was
first reported. A negative balance indicates that imports are greater than exports, so Jordan is operating
at a trade deficit. The balance has gone from -29.8%(of GDP) in 1990 to -25.9% in 2014, a stark contrast
to the Arab World’s -1.9% in 1990 to 7.4% in 2014. Jordan is relying on foreign borrowing for
accumulation of capital as opposed to savings. This is the composition of Jordan’s gross capital
formation ratio, which is what drives output growth according to the Harrod-Domar growth model
(World, n.p.).

6. Gross capital formation is simply the sum of gross domestic savings and the external balance on
goods and services. It can be viewed as an investment ratio. Jordan actually had a smaller ratio in 2014
than it did in 1990. The 2014 ratio (27.97% of GDP) is still higher than the Arab World ratio of 26.3%.
This investment ratio can further be used to determine how efficient an economy is in regards to
marginal product of capital. The incremental capital output ratio (ICOR) can be found by dividing the
gross capital formation ratio by the GDP growth rate. The ICOR for Jordan is shown in the graph below.
The ratio doubled between 2009 and 2010, a sign that the economy became less efficient. For example,
the 2010 ratio is about 10. This implies that it takes 10 dollars worth of investment to generate an extra
one dollar of production. Thus, the lower the ICOR, the more efficient an economy is. It should be
noted that gross capital formation increased starting in 2010, yet the ICOR also increased. The
Jordanian economy is not getting as much bang for its buck (World, n.p.).

7. It is clear, by way of GDP per capita, that Jordan has experienced economic growth since 1990.
But, savings has not significantly increased and gross capital formation has actually decreased. Perhaps
there are other indicators that can better explain Jordan’s growth in the last 26 years.
Jordan is not an oil-exporting country, but oil still plays a big role in its economy. Workers will
work in one of the Gulf states, and their income will be spent domestically in Jordan. Personal
remittances as a percentage of GDP have been historically very high compared to the rest of the Arab
World. Jordan’s remittances have actually declined to about 10% of GDP in 2014, but this is still high
compared to the Arab World’s 2% (World, n.p.).

8. When examining Jordan’s economic growth since 1990, it is important to discuss the impact on
human resources. Its population has more than doubled since 1990, going from 3.1 million to just over
6.6 million people. However, it is clear that Jordan has undergone the demographic transition as laid
out by Lucas despite such a rapid spike in population. The fertility rate has declined every year since
1990, and was most recently 3.4 in 2014. This rate is right in line with the Arab World’s. Also,
adolescent fertility has declined by more than half since 1990. In 2014, the Arab World’ adolescent
fertility rate was 48.2 whereas Jordan’s was 23.8 (World, n.p.).

9. These numbers seem to be in line with Lucas’ model. The population has stabilized because of a
declining fertility rate. Now, it must be asked whether the investment in human capital has increased.
Educational indicators can be used to answer this question.
As the graph depicts, a higher percentage of the school-age population is in school. The
secondary education enrollment ratio has gone down slightly since 2008, but it is still high compared to

10. the rest of the Arab World. Jordan’s secondary education enrollment ratio was 86.6% in 2013,
compared to the Arab World’s ratio of 71.1% in the same year. An even more dramatic rise can be seen
in the tertiary enrollment ratios. This rate in 2014 was 47.6%, more than double the 1990 rate of 20.5%.
Jordan also performs well when looking at the gender parity index (GPI) for certain education indicators.
The GPI is the ratio of females-males, and Jordan’s GPI for enrollment rate of all education level is very
close to 1. Based on this fact, it does not seem that there are any disadvantages due to gender when it
comes to education (World, n.p.).
So far, Jordan has experienced a decline in the fertility rate and an increase in education
participation. This helps explain the growth in GDP per capita as mentioned previously. But by looking
at Jordan’s current labor market situation, it is evident that it suffers from the same issues as the rest of
the Arab World.
Both total and youth unemployment rates have fallen, but they remain rather high. Nearly 1 out
of every 3 Jordanians ages 15-24 were unemployed in 2014. As education participation rates continue
to rise, unemployment rates could continue to fall (World, n.p.).

11. Although gender inequality appears to be a non-issue with regards to education, the female
unemployment rate shows a distinctive contrast between genders. The female unemployment rate in
2014 is about two times the male unemployment rate. The unemployment rate of those with tertiary
educations is even more startling. In 2014, 69.7% of unemployed females had a tertiary education,
compared to just 22.95 of unemployed males. These rates have actually risen since 2007 (World, n.p.).
So, Jordanians are becoming more educated yet there are no jobs for them. As seen previously, the
slow increase in domestic savings could lead to investment that creates jobs. In the context of the Lucas
model, Jordan is undergoing the necessary demographic transition, but eventually the high
unemployment rates will affect future growth.
Since the return to general elections and parliamentary politics in 1989, Jordan has definitely
experienced economic growth. Its GDP per capita has increased; and it has followed the Lucas model in
that fertility rates have declined and there has been a rise in education participation. However, there
are indicators that may threaten future growth. Unemployment rate are high although they have
recently began to decline. Those with tertiary education are struggling to find jobs, especially females.

12. For future economic growth to continue, Jordan will need accomadate a population that is improving its
human capital.

13. Works Cited
"History - The Hashemite Kingdom of Jordan." History - The Hashemite Kingdom of
Jordan. N.p., n.d. Web. 03 May 2016.
"Jordan Country Profile." BBC News. BBC, 2015. Web. 03 May 2016.
Salehi-Isfahani, Djavad. "Lecture Notes Economic Growth." N.p., 2003. Web. 3 May 2016.
"World DataBank." The World Bank DataBank. The World Bank, n.d. Web. 03 May 2016.