Academic journal article The Middle East Journal

How Favoritism Affects the Business Climate: Empirical Evidence from Jordan

Academic journal article The Middle East Journal

How Favoritism Affects the Business Climate: Empirical Evidence from Jordan

Article excerpt

This article, based on research conducted in Jordan, discusses how favoritism affects the business climate. Jordan's business climate is mediocre in international and regional comparison, making it insufficient in light of the country's small domestic market. Businesspeople consider the complexity of administrative procedures to be a main problem for investors, along with a lack of fairness and predictability in administrative decisions. Favoritism, which is referred to as "using wasta," (connections) contributes substantially to both problems. Investors with good wasta can speed up procedures and get exclusive access to services and information. They can even influence legislation to their advantage. Perhaps even more problematic, entrepreneurs tend to invest their time and money in social relations rather than in productive capital, because their success depends on their wasta rather than the quality of their products. Many Jordanians are aware of these problems. Nevertheless they keep using wasta for at least four reasons. First, they do not see any alternative for achieving their goals. Second, people go on using their wasta as long as everybody else does the same. Third, many Jordanians associate the use of wasta with cherished values, such as solidarity or loyalty, i.e. they believe that the use of wasta is part of their culture. Fourth, Jordan's administrative and political system lacks transparency and accountability on all levels.

A good business climate is central to economic growth and poverty alleviation; it is the key determinant of the decision of private firms to invest, innovate, and create jobs. Good governance on its part is a main aspect of an enabling business environment, and the control of corruption is one of its core dimensions. 1

Favoritism is a form of corruption. It is the use of personal connections to receive preferential treatment, which constitutes a widespread phenomenon in many parts of the world. In Asia, it has found growing attention in recent years, while relatively little research has been done on favoritism in the Middle East and North Africa region, and particularly on the impacts of wasta on the business climate. 2 In this region, favoritism is usually referred to as "wasta," which is the Arabic word for "relation" or "connection." The aim of this article is thus to discuss how favoritism affects private sector development and what policy recommendations can be derived from the answer to this question. It is based on empirical evidence from Jordan where a team from the German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE) 3 conducted empirical research in early 2006. The article concludes that favoritism has significant impacts on investment in Jordan and therefore has to be addressed. Political and administrative reforms are crucial for achieving this goal.

The article has seven sections. In the following section, we define the terms "business climate" and "favoritism" and present a conceptual framework for the effects of favoritism. From this we derive our assumption that favoritism leads to unfairness and inefficiency in state-business relations and thereby affects the business climate. In Section? 3, we describe our methodological approach, i.e. how our hypothesis has been tested in Jordan. Sections? 4 and 5 present the findings of this empirical research with respect to the quality of the business climate and the use of wasta in Jordan. Section? 6 discusses how wasta influences state-business relations and, thereby, the business climate at large. Section? 7 concludes with policy recommendations, which are based on an analysis of the main reasons for the persistence of the use of wasta in Jordan.


The business climate can be generally defined as the set of factors that shape the decisions of both local and foreign firms to do business in a country. While some factors, such as a country's endowment with natural resources or its geopolitical situation, cannot be changed by politics, others can. …

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