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Iraqi refugees and the economy
Real estate news By Jordan Times
02/10/2007
Jordan has offered refuge to many Iraqis, several waves of them as a matter of fact. The last, whose size is yet to be officially disclosed, ranges from 250,000 to 1.25 million. The last influx of Iraqis, a brutal consequence of the disastrous war which, according to many, is still going on, has been subject to intense debate and scrutiny, especially after the downwards slide of the stock market, a fall in FDI inflows and deflation of real estate prices. Should Jordan be compensated for hosting Iraqis? The answer is worth a "billion dollars". Below I examine several of the so-called "adverse" effects of the Iraqi influx on the economy.
In recent months, there were claims that Iraqis have been behind the inflation witnessed in Jordan. The basic idea is that a sudden increase in population leads to a larger consumer base and, consequently, a greater demand for goods and services. However, in any well-functioning economy, such an impact is short-lived because markets react by expanding production, greater employment opportunities are generated and prices go back to normal. Hence, the impact of the sudden influx should have been temporary. When prices rise and become sticky downwards - refuse to fall - the outcome is due to inherent market deficiencies: a small, non-reactive production base, obstacles to business creation and expansion, monopolistic practices, lack of information and information asymmetries in markets, and governmental controls and policy failures - to name a few.
Since the surge in demand cannot be satisfied domestically and can only be met by greater imports, with no visible chances for local supply responses, the shortage is satisfied by more imports and rising prices that persist in the long run. Has this been the case in Jordan? There is evidence that the business environment has not improved but deteriorated in the last three years relative to the rest of the world. Jordan's ranking in the Doing Business report of the International Finance Corporation dropped from 73 in 2005 to 78 in 2006 and 80 this year. A lean, proactive business environment would have been better able to respond and growth would have been beneficial.
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