Executive Summary


TheC onstraints Analysis (CA) represents a primary endeavor to clearly identify possible constraints to economic growth in Jordan. It is based on the Growth Diagnostics school of thought originally introduced by Hausmann, Rodrick, and Velasco of Harvard University and follows a defined problem tree to help identify fundamental impediments to economic growth.  The analysis in Jordan further benefited from a consultation process that included academia,nongovernmental organizations, and representatives of the private sector and government to identify such barriers. 

Since late 1980s, Jordan has been actively implementing a series of market-based structural reform programs aiming at achieving a private sector-led and outward-oriented growth. As a result of Jordan"s reform efforts, particularly on the macroeconomic level, Jordan’s current performance remains strong, growth is robust, core inflation is contained, the currentaccount deficit is narrowing, reserves are comfortable, and the fiscal situation continues to improve.  Consequently, the macroeconomic environment requires continued scrutiny but does not appear to be a constraint to growth at this time.

Despite Jordan’s continuing processes to upgrade its business environment, it still faces several micro risks that may reduce the profitability of private investments.  These constraints include, among others, the high costs of starting new businesses and the time necessary for carrying out import/export procedures. 


Together, these micro risks constitute a constraint on Jordan’s economic growth.  
This report is divided into the following sections:

  1.  a short country background.
  2.  a detailed discussion of framework adopted in the constraint analysis.
  3.  findings related to low return to economic activity, and finally.
  4.  findings related to high cost of financing.


Based on a wide range of evidence, the analysis indicated that the key constraints to economic growth in the Jordanian economy are in the field of infrastructure and micro-risk. Regarding Jordan’s infrastructure it is well developed and not presently a binding constraint.  The future availability of water,however, is a critical issue requiring immediate attention. Although, scarcewater is not currently a significant growth constraint, Jordan is among the ten most water-poor countries in the world. Inefficient pricing and management policies aggravate the resource contraint, as over 60% of available water is absorbed by agriculture, which accounts for about less than 3% of GDP. 

On the latter, a number of micro risks appear to be a source of low privateprofitability, which in turn may be a binding constraint on private investment. These include, among others, the high costs of starting new business and long waiting times for processing imports and exports. 

In addition, the analysis indicated Jordan has invested heavily to achieveimpressive rates of attainment in education, particularly in comparison to mostcountries in the MENA region. Jordan, however, is not creating enough jobs foreducated individuals (especially those holding a bachelor degree and above).Three crucial mismatches explain the simultaneous existence of increasing labordemand and high sustained unemployment in Jordan: (1) Geography, new jobs and prospective workers are far apart. (2) Employability: Although Jordanian workers have sufficient education, vocational training, and job experience, employers often prefer foreign workers. (3) Expectations: Jordanians maintain afalse optimism about their employment. It is unclear whether there is a pronounced lack of specific vocational skills, but vocational and other government programs are in place to address the issue.  Moreover, evidenceindicates that positive return to education and trends in educational attainmentin Jordan are strong. Therefore, human capital is not a binding constraint to investment.

The capacity and incentives for innovation (e.g., in the application oftechnology, in the development of new products and services) are important determinants of Jordan’s ability to benefit from globalization.  However, information-related market failures are likely present, but do not appear to be critically important at this time (e.g., learning externalities, spillovers from innovation, coordination failures).

The macro environment indicators including inflation rate, high budget deficitand high current account are significant challenges. Monetary policy in Jordanaims at containing inflation rate at levels that do not harm economic growth,but imported inflation could induce more high inflation rates and mayconstraint economic growth. In view of on-going fiscal consolidation (oneexample of which is the recent removal of fuel subsidies) which should helpreduce Jordan’s reliance on foreign aid inflows and improve the country’sprospects for containing macroeconomic instability, and strong donor supportfor further fiscal and economic reform, Hence, the above mentioned challengesare not impeding economic growth and not a major threat to attract more investmentnow.


The financial system strengthened significantly as a result of implementing structural reforms and the general rebounding of the economic activities after 1992, and the associated increased profitability of the commercial banks. The deepening of the financial system encompassed enhancing financial intermediation, improving the payments system, and establishing an active stock exchange. Real deposit and lending rates are declining.  Intermediation by the banking system in Jordan is efficient and not poor, the cost of financing is not high in Jordan and is not a binding constraint to growth at this time.