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How much has the Syrian conflict cost Jordan?

The World Bank has released a detailed report on the lost opportunities of trade integration for the Jordanian economy. The Jordanian economy is 9% smaller than it would have been if the Syrian war had not occurred.

The new report (Economic effects of the Syrian war and the spread of the Islamic state on the Levant”) calculates the direct and indirect costs of the crisis on Jordan, Turkey, Syria, Iraq, Lebanon and Egypt. The report states that the the region as a whole has lost $38 billion* in output.

Regional trade disintegration deprives opportunities to trade, transform the structure of the economy and create good jobs in services and manufacturing. It is the first comprehensive analysis to look at which sectors of the Jordanian economy have suffered in comparison to an economic model in which the war did not occur.

Although the arrival of Syrian refugees boosted consumption, investment and labour supplies overall (increasing aggregate GDP) per capita GDP has actually declined by 1.5%. The report shows that the crisis has benefited land and business owners but most people have suffered from the competition for jobs and pressure on services.

This report goes beyond calculating the direct cost of the conflict. It uses a global computable equilibrium framework to ask what if the regional countries had continued on their path to deepening trade ties? The new Levant Economic Zone would have reduced non-tariff measures, improved logistics and liberalised trade. The report uses mathmatical equations to show the gains that could have occurred from accelerated economic growth, diversification and job creation.

Although the simulation shows a direct per capita loss of 1.4% in Jordan caused by the war, it shows a 5.8% per capita loss if we include the effects of trade disintegration as well. The cumulative welfare effect is therefore said to be $834million. The author notes that if the foregone regional trade integration is included the cost escalates to 9% loss of potential GDP.

Trade disintegration has increased transport costs on trade to and from the Levant countries which have reduced the transport sector by 15%. These increases have most detrimental effect on output and intra-Levant trade in bulky products.

Commentary:

*The figure of $35billion is at 2011 levels. It was taken from the authors blog on the report. The tabulated figure would be $33billion — but no total was included in the report. In today's currency the figure would be $38billion.

Although the report includes the statistical method it does not make it clear at what date the simulation starts. Most of the data appears to be taken from 2007 and extrapolated from that point.

This leaves me with serious doubts about the usefulness of this model. In 2007 there was a housing bubble which collapsed in 2008. Since that point there have been continuing rises in property costs beginning with the reform of tenancy laws in 2011 and continuing until the present day. These rises have been exacerbated by the presence of over a million refugees. But the report believes that property prices would have been 18% higher if the war had not occurred. I would be interested to know where exactly they take their base line figure from? I asked the authors for data on this modelling but did not receive a response.

The statistical model does not seem to deal with several real issues. For example; it is not possible for the wool traders in Northern Jordan to sell their goods through Syria to the mills in Turkey. The reality is that this trade has collapsed. It has not suffered an increase in costs via new trade routes, nor failed to benefit from reduced tariffs — it simply collapsed.

There seems to be a limit to the usefulness of a “what if?” scenario which imagines a stable continuation of plans. Especially in the MENA region. Would the Levant Economic Zone have been implemented? Even if all preliminary discussions had been completed, is it realistic to believe that the details of the trade group would have been finalised?

I wrote this blog because I was interested to see the details of the report and believed others might also. I was interested to see which segments of society have financially benefited from the conflict.

However, I now see the report as a fairly speculative piece which imagines a different possible reality. It makes us ask not only — what the direct costs of war are, but reminds us that we could also have been moving to a better future as well.

But it fails to engage with a range of events — price bubbles, legislation, increases in aid funding- which have all changed reality. In adversity people respond creatively. If the borders had been open would so many people have pushed into internet businesses which bypass them? Which industries have developed import substituting mechanisms- will that be a blessing in the long term? None of these questions are answered with economics equations on tariffs.

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