Jordan: Model Reformer Without Upgrading?

Abstract

Jordan has been praised as one of the best reformers among middle-income countries. Renewed growth during recent years has raised expectations that the reforms are finally bearing fruit. This article argues that growth in Jordan is not based on structural transformation and is not sustainable in the absence of firm-level upgrading. Growth has been driven by the expansion of non-tradable activities, while the country has not been able to modify its production structure or achieve noticeable productivity improvements under neoliberal policies. Higher value added and technology-intensive production has not evolved concomitantly with the development of social capabilities, impeding the emergence of a virtuous cycle leading towards economy-wide upgrading. Uneven development of social capabilities has also constrained the upgrading potential. The macroeconomic context has not been conducive to generating incentives for investment aiming at enhancing firm-level capabilities and promoting economic diversification. Upgrading will not take place spontaneously by the free functioning of market forces alone, and in its absence Jordan will not be able to confront the middle-income trap. This requires a more active state intervention, beyond building a business friendly environment, which in turn demands the development of institutional capabilities The Jordanian experience offers important insights for other small countries that have embraced the neoliberal recipe for development.