metadata: authors: 0: author: Segnana,Juan
1: author: Lopez-Acevedo,Gladys C.
2: author: Robertson,Raymond
3: author: Roche Rodriguez,Jaime Alfonso
count: Syrian Arab Republic,Jordan
docna: 0: docna: The Economic Impacts of the Syrian Refugee
            Migration on Jordan : An Integration Perspective
docty: Policy Research Working Paper
abstracts: cdata!: The Syrian Civil War in 2011 led to a
            substantial influx of refugees into Jordan, with more than
            660,000 Syrians arriving by 2015. More than half of these
            refugees were of working age. This study shows that Syrian
            refugees have less education than their Jordanian
            counterparts, and policies attempted to help them to
            assimilate into manufacturing. The study tests two
            hypotheses related to refugee assimilation. The first
            hypothesis examines the 2016 Jordan Compact with the
            European Union, which aimed to integrate Syrian refugees and
            improve Jordan&#x2019;s export profile with simplified
            rules of origin for certain industries. If the Jordan
            Compact was effective, a relative increase in exports to the
            European Union, compared to other regions, would be
            expected. The second hypothesis suggests that the successful
            integration of Syrian workers into the manufacturing sector
            contributed to a boost in manufacturing exports to all
            destinations relative to other exports. The study conducts a
            gravity difference-in-differences analysis to evaluate these
            two hypotheses.  The findings show little, if any, evidence
            supporting the first hypothesis but strong support for the
            second. These findings suggest that although the simplified
            rules of origin had limited impact on exports to the
            European Union, the Jordanian government effectively
            integrated Syrian workers into the manufacturing sector.
            Labor force surveys indicate that a skill mismatch impeded
            the integration of Syrian workers into the industries
            targeted by the Jordan Compact, but refugees were
            successfully assimilated into the manufacturing industry.
display_title: The Economic Impacts of the Syrian
            Refugee Migration on Jordan : An Integration Perspective
listing_relative_url: /research/2024/09/34388851/economic-impacts-syrian-refugee-migration-jordan-integration-perspective
topicv3: Labor Markets m1326488 855,Integration of Migrants m1504165 2840,Refugee Resettlement m1505718 2665
publishtoextweb_dt: 2024-09-09T00:00:00Z
dois: 10.1596/1813-9450-10903
origu: Off of Sr VP Dev Econ/Chief Econ (DECVP)
no_of_pages: 26
author_keys: 0: author_key: 1768607
1: author_key: 428192
2: author_key: 636947
3: author_key: 1915557
model_extractions: Policy Research Working Paper 10903 The Economic Impacts of the Syrian Refugee Migration on Jordan An Integration Perspective _Juan Segnana Gladys Lopez-Acevedo Raymond Robertson Jaime Alfonso Roche Rodriguez_ Poverty and Equity Global Practice September 2024
Policy Research Working Paper 10903

# **Abstract**

The Syrian Civil War in 2011 led to a substantial influx of refugees into Jordan, with more than 660,000 Syrians arriving by 2015. More than half of these refugees were of working age. This study shows that Syrian refugees have less education than their Jordanian counterparts, and policies attempted to help them to assimilate into manufacturing. The study tests two hypotheses related to refugee assimilation. The first hypothesis examines the 2016 Jordan Compact with the European Union, which aimed to integrate Syrian refugees and improve Jordan’s export profile with simplified rules of origin for certain industries. If the Jordan Compact was effective, a relative increase in exports to the European Union, compared to other regions, would be expected. The second hypothesis suggests that the successful integration of Syrian workers into the manufacturing sector contributed to a boost in manufacturing exports to all destinations relative to other exports. The study conducts a gravity difference-in-differences analysis to evaluate these two hypotheses. The findings show little, if any, evidence supporting the first hypothesis but strong support for the second. These findings suggest that although the simplified rules of origin had limited impact on exports to the European Union, the Jordanian government effectively integrated Syrian workers into the manufacturing sector. Labor force surveys indicate that a skill mismatch impeded the integration of Syrian workers into the industries targeted by the Jordan Compact, but refugees were successfully assimilated into the manufacturing industry.

This paper is a product of the Poverty and Equity Global Practice. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at gacevedo@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **The Economic Impacts of the Syrian Refugee Migration on Jordan: An Integration Perspective**<sup>1</sup>

Juan Segnana (Tilburg University) Gladys Lopez-Acevedo (The World Bank) Raymond Robertson (Texas A&M University) Jaime Alfonso Roche Rodriguez (Consultant at The World Bank) Keywords: International Trade, Labor Markets, Refugees, Jordan Compact JEL Codes: F16, J15, N35, O15

> 1 This paper is a product of the Poverty and Equity Practice at the World Bank Group. It was funded by  a Trust Fund for work on Refugees at the CMU. We want to thank the following colleagues for their immense support during this process including Mohamed Hassan Abdulkader; Holly Welborn Benner; Erwin W. Knippenberg; Takaaki Masaki. The views expressed herein are those of the authors and do not necessarily reflect the views of the World Bank.
# **1. Introduction**

As immigration and refugee flows increase, recipient nations are increasingly pressured to understand how immigrants generally, and refugees in particular, are “absorbed” into the labor force. How immigrants are absorbed into the labor force has implications for native support for immigrants/refugees, government resources dedicated to supporting unpaid migrants, and economic growth. The increase in labor supply can be absorbed successfully (with minimal domestic wage and employment impacts accompanied by economic growth) if the economy is sufficiently diversified.<sup>2</sup> Increasing exports is important because most recipient nations are too small to affect global prices and, by exporting, they can avoid the “Dutch Disease” effect of driving down domestic wages and employment through the increase in domestic production and labormarket competition. In other words, an increase in exports is often synonymous with an increase in labor demand.

In this paper, we focus on Jordan’s experience of receiving over 660,000 Syrian refugees between 2011 and 2015 following the Syrian Civil War. Recognizing the important potential of exports to increase labor demand and facilitate Jordan’s ability to absorb the influx of migrants, the European Union (EU) and the Hashemite Kingdom of Jordan entered into an agreement known as the Jordan Compact (JC) in 2016. The JC includes two measures to facilitate Jordan’s export growth during the influx of migrants. The first measure focused specifically on exports to the EU by simplifying “rules of origin” that define what products are considered “made in Jordan”. Relaxing these rules makes it easier for Jordan to expand exports by increasing access to foreign inputs and reducing trade costs (Abreha and Robertson 2023). The second measure focused on cooperation to help refugees assimilate and find jobs through better access to education, and attracting investment designed to enhance the resilience of both Jordanian host communities and Syrian refugees.

Evaluating the effects of these two measures is both important and straightforward. For the first measure, we evaluate the hypothesis that the EU-specific part of the JCC that relaxed rules of origin for Jordan’s exports to the EU would have shifted Jordan’s export basket towards the EU. In the second measure, the cooperation between Jordan and the EU to facilitate immigrant assimilation resulted in a higher share of migrants working in manufacturing than the share of natives working in manufacturing. Therefore, we evaluate the hypothesis that Jordan’s export basket would have shifted towards manufacturing following the Jordan compact relative to other sectors.

Our approach towards evaluating both hypotheses relies on a difference-in-differences gravity model approach. Our results provide little, if any support for the first hypothesis but strong and significant support for the second. The results suggest that the coordination between the EU and Jordan successfully supported migrant assimilation into the labor force generally, and

> 2 cone will have no effect on wages of natives.

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into manufacturing in particular, but relaxing the rules of origin had very little, if any, effect on expanding exports from Jordan to the EU.

This paper contributes to studies on the socio-economic impact of large-scale refugee movements on host countries. This includes literature on refugee crises, refugee integration, and the economic implications of forced migration (Betts and Collier, 2017; Dustmann et al., 2017; Brell et al., 2020). This study adds to the integration of minorities into local labor markets (Bertrand and Mullainathan, 2004; Charles and Guryan, 2008; Heath et al., 2013; Bartos et al., 2016; Hedegaard and Tyran, 2018), focusing for the first time on the integration of refugees into export-oriented industries. Expanding exports might also occur if policies are in place to help refugees overcome the universal problem of finding jobs that are appropriate for refugee skills.

# **2. Refugee Crisis and Refugee Assimilation**

As of 2024, Jordan hosts approximately 1.3 million Syrians, with nearly 670,000 registered as refugees with the United Nations High Commissioner for Refugees (UNHCR). Most of these refugees live outside camps in urban and rural areas, while a smaller portion resides in refugee camps like Zaatari and Azraq. Over 80% of Syrian refugees in Jordan live in host communities, particularly in cities like Amman, Irbid, and Mafraq. Camps such as Zaatari, which has become one of the world's largest refugee camps, host tens of thousands of people but represent a fraction of the total Syrian refugee population in Jordan.

While the integration of refugees into the labor market has had positive economic effects, including increased consumer demand (Rozo and Sviatschi, 2018) and labor force participation (Fakih and Ibrahim, 2016), it has also placed additional pressure on public services and infrastructure (Alhawarin et al., 2021; Rozo and Sviatschi, 2021). Access to education has been a significant issue, with many Syrian children facing challenges in enrolling in Jordanian schools. The labor market has been affected, with some Jordanians perceiving refugees as competitors for jobs, especially in the informal sector. Employment opportunities for refugees are limited, with legal restrictions on work permits for certain sectors. In this context, the government of Jordan worked hard in the assimilation process of refugees, integrating them into the labor market through special work permits and initiatives.

The Jordanian government has implemented several policies and initiatives to assimilate Syrian refugees into the labor market, recognizing the economic and social challenges posed by the large refugee population. These efforts have been shaped by both domestic needs and international pressures, with the aim of balancing the needs of the refugees with the country's economic realities.

# **2.1.** **_The Jordan Compact_**

The Jordan Compact was a landmark agreement between Jordan and the international community, particularly the European Union and donor countries. In exchange for significant financial aid, trade concessions, and investment opportunities, Jordan agreed to improve access 3 | P a g e
to its labor market for Syrian refugees. As part of the Compact, Jordan committed to issuing up to 200,000 work permits to Syrian refugees. This was a significant policy shift, as work for refugees was previously restricted. The permits allowed Syrians to work in specific sectors, including agriculture, construction, manufacturing, and services. The Compact also included the creation of special economic zones where companies could employ Syrian refugees, often in exchange for preferential access to European markets.

# **2.2.** **_Simplification of Work Permits Procedure_**

fees and eliminating some bureaucratic hurdles. Mobile units were also deployed to refugee camps and urban areas to facilitate the issuance of permits. Jordan introduced flexible and sectorspecific work permits, which allowed Syrian refugees to work in various jobs within certain sectors without the need for employer sponsorship. This made it easier for refugees to find and switch jobs. However, work permits are still largely restricted to low-wage, labor-intensive sectors, limiting opportunities for many skilled refugees. Moreover, despite the availability of work permits, about two-thirds of Syrian refugees continue to work informally, often due to the mismatch between their skills and the available jobs, or the perceived complexity of the work permit process.

# **2.3.** **_Sector-Specific Initiatives_**

The agriculture sector has been one of the most accessible for Syrian refugees, with many permits issued for seasonal and regular agricultural work. The government worked with international organizations to promote the inclusion of refugees in this sector, where labor demand is high. The Government of Jordan made focal efforts to integrate Syrians into the construction and manufacturing sectors, which are important to Jordan's economy. This included vocational training programs designed to match refugees' skills with market needs.

To motivate our data section, it is essential to understand the UN Statistics Division's (ISIC – HS) concordances, which link the International Standard Industrial Classification of All Economic Activities (ISIC) with the Harmonized System (HS). ISIC is a global standard for categorizing economic activities, providing a hierarchical structure that organizes industries based on their primary activities, and is used for various statistical purposes. Meanwhile, the HS, developed by the World Customs Organization, offers a standardized nomenclature for classifying traded goods, facilitating customs, trade, and tariff processes. The ISIC – HS concordances bridge these two systems, enabling us to connect economic activities from Labor Force Survey (LFS) data (ISIC) to specific products in the UN COMTRADE data (HS), thereby enriching our analysis of economic activities and trade flows. Once the ISIC and HS codes are mapped, we can observe the employment allocation of workers across export-oriented industries and evaluate the employment implications of the JC.

The Jordanian LFS is a survey implemented through four rounds on a yearly basis by the Jordanian Department of Statistics (DoS) and provides detailed information on various aspects of 4 | P a g e
the labor force in the country. The survey covers about 16,500 households distributed over all governorates. Since 2017, the survey collects data that are representative of Jordanians and nonJordanians. As we cannot directly identify Syrians in the data, we proxy them as all non-Jordanians who arrived in Jordan after 2011 and have refugee status. Furthermore, we define as other immigrants as the rest of the non-Jordanians. In so doing, we follow the standard approach previously used for conducting analyses on Syrian refugees using Jordan LFS at the Poverty Practice (World Bank, 2016).

The LFS data cover a wide range of topics related to employment, unemployment, and labor force participation. It includes information about individuals' demographic characteristics, educational attainment, occupation, industry, employment status, and other relevant laborrelated variables.

For this study, we built a repeated cross-sectional dataset between 2017 and 2019. We harmonized industry codes to ISIC Revision 2 classification. We refer to other data sources and harmonization used for this study in the Appendix.

A sectoral disaggregation of occupations (ISCO) across sectors shows the tertiary sector absorbs most laborers in Jordan’s employment structure. Consistently, further disaggregating the occupational categories by main industry shows most workers are engaged in the _Community, Social, and Personal Services_ sector (see Figures 1 and 2). This sector includes activities in Education Services, Health and Social Services, Public Administration and Defense, and Cultural and Recreational Activities, among others.

<!-- Start of picture text --> Figure 1: Occupations, by broad economic sector<br>100%<br>Primary 80%<br>60%<br>Secondary<br>40%<br>Tertiary 20%<br>0%<br><!-- End of picture text -->

**Source:** Authors’ elaboration using data from UNCOMTRADE and Jordan LFS 2017-2019.

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<!-- Start of picture text --> Figure 2: Occupations, by industry<br>100%<br>90%<br>Agriculture, Fishing, Forestry<br>80%<br>70%<br>Mining and quarrying<br>60%<br>Manufacturing 50%<br>40%<br>Electricity, gas and water 30%<br>20%<br>Financing, insurance, real 10%<br>estate, business<br>0%<br>Community, social, and<br>personal services<br><!-- End of picture text -->

**Source:** Authors’ elaboration using data from UNCOMTRADE and Jordan LFS 2017-2019.

Jordan experienced a transformation in the allocation of employment across sectors between 2017 and 2019. Among those workers exposed to international trade, the shares of workers in “ _Community, Social, and Personal Services_ ” increased year after year, reaching 76% in 2019, at the expense of employment in “ _Financing, Insurance, Real Estate, and Business Services_ ”, as well as in “m _anufacturing_ ” (see Figure 3).

<!-- Start of picture text --> Figure 3: Employment Composition, by aggregate sector (2017-2019)<br>100%<br>90%<br>Community, social, and personal<br>services 80%<br>Financing, insurance, real estate, 70%<br>and business services 70%<br>60% 73% 76%<br>Electricity, gas, and water supply<br>50%<br>Manufacturing 40%<br>30%<br>Mining and quarrying 7%<br>5%<br>20% 5%<br>Agriculture, hunting, forestry, and 10% 16% 14% 12%<br>fishing<br>5% 5% 5%<br>0%<br>2017 2018 2019<br><!-- End of picture text -->

**Source** : Authors’ calculations with data from Jordan LFS and UNCOMTRADE

6 | P a g e
<!-- Start of picture text --> Jordanians<br>380%<br>70%<br>= Community, social, and personal Ege,<br>services<br>@ Financing, insurance, real estate,<br>and business services 50%<br>m Electricity, gas, and water supply<br>40%<br>1 Manufacturing<br>Mining and quarrying 30%<br>m Agriculture,fishing hunting, forestry, and 20%10% 6% 5% rae<br>%~ “©<br>2017 2018 2019<br><!-- End of picture text --> <!-- Start of picture text --> Syrians<br>a<br>8%<br>TM@ Community, social, and personal 7%<br>services<br>| Financing, insurance, real estate, and ©%<br>business services<br>m Electricity, gas, and water supply 5%<br>5 Manufacturing 4%<br>1 Mining and quarrying 3%<br>m Agriculture,fishingi hunting,i forestry, and 2%1% “ | 3% || ose |<br>0% an Ore OOOO<br>2017 2018 2019<br><!-- End of picture text -->

<!-- Start of picture text --> Other Immigrants<br>40%<br>35%<br>= Community, social, and<br>personal services 30%<br>@ Financing, insurance, real<br>estate, and business services 25%<br>supply 20% -—J -—<br>"= Manufacturing<br>15%<br>@ Mining and quarrying<br>10% po ee Po<br>m Agriculture, hunting, forestry,<br>and fishing 5% 3% 12% 2%<br>3% 3% 2%<br>0% r :<br>2017 2018 2019<br><!-- End of picture text -->
<!-- Start of picture text --> Men<br>6<br>4<br>2: Ease ese == | | | |<br>0 || ee<br>Agriculture, Community, Electricity, gas, Financing, Manufacturing Mining and<br>hunting, social, and and water insurance, real quarrying<br>forestry, and personal supply estate, and<br>fishing services business<br>services<br>TM2017 TM2018 TM2019<br><!-- End of picture text -->

<!-- Start of picture text --> Women<br>6<br>4<br>02 | nig |<br>1<br>Agriculture, Community, Electricity, gas, Financing, Manufacturing Mining and<br>hunting, social, and and water insurance, real quarrying<br>forestry, and personal supply estate, and<br>fishing services business<br>services<br>mTM2017 TM2018 TM2019<br><!-- End of picture text -->
<!-- Start of picture text --> VO ©AR$<br>60%<br>$50% ©$a<br>m Agriculture, hunting, forestry, and fishing<br>@ Mining and quarrying 40%<br>m@ Manufacturing<br>@ Electricity, gas, and water supply 30%<br>TM@ Financing, insurance, real estate, and business services<br>m Community, social, and personal services<br>20% ————MSNNN wmeoeee——-—-|—M— _—_oi i ——_eAOX_§ \nm\§TM i ii —<br>ox —iBee2 _BERe_8 BSEEEE BREEEE SSEEes _o8 BERBER BESEES SESSee ___._BaumEE _.._mil_<br>&& cSwe s &y ASS xR s RSo eeS s@ »Oo &<br>s ° é s s & Ss 8 g eS<br>> ES ye & & s a By <<br>> < oS EO RS RS ;s<br>¥ Cs Na < SS<br>S& <<br>s s<br>ae<br>DO<br>60%<br>50%<br>m Agriculture, hunting, forestry, and fishing<br>@ Mining and quarrying<br>30%<br>@ Manufacturing<br>@ Electricity, gas, and water supply 20%<br>@ Financing, insurance, real estate, and business services<br>m@ Community, social, and personal services 10%<br>os oo El | All chal that a<br>SFG £Ro FS SF SF SF SK LC2 ZFS s@ ef© &<br>RS 2 é < S$ & s RY x eS es<br>> >» & & Se€ & Cs .s eo<br>¥ & Jaye éBN& “<br>S s<br>ae<br><!-- End of picture text -->
**Figure 8: Completed Education Levels for Syrians and Jordanians in Working Age (2017-2019)**

<!-- Start of picture text --> .8<br>.6<br>Jordanian<br>.4<br>Syrians<br>.2<br>0<br>0 5 10 15<br>Education Level Completed<br>Kdensity<br><!-- End of picture text -->

**Notes** : Authors’ calculations with data from Jordan LFS. Education levels increase by one from Illiterate to PhD as shown in Figures 6 and 7.

The Elasticity of Substitution (EoS) is a measure that quantifies how easily one input can be substituted for another in the production process. In this specific context, the EoS is calculated as the percentage change in Syrian employment divided by the percentage change in Jordanian <u>a</u> S <u>S</u> employment ( **EoS** = ) . Therefore, a positive EoS implies % cchSSnn SSnn S SSnn aae eeJJ Seeaannee complements, but a negative EoS implies substitutes. If employment increases (decreases) for % cchSSnna SSnn J SSJJSSnnS nn aae eeJJSSeeaannee both groups, they are complements (EoS>0), but if employment increases (declines) for one but declines (increases) for the other, Syrians and Jordanians are substitutes (EoS<0). Table 1 shows estimates of the EoS of Jordanians and Syrians across sectors and for the economy as a whole. Although the aggregate EoS suggests Syrians and Jordanians are substitutes, this is not the case for workers engaged in the primary and manufacturing sectors.

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<!-- Start of picture text -->
| Sector si Sectoral Elasticity of Substitution Elasticity of Substitution<br>Agriculture, hunting, forestry, and<br>pe 11.23<br>fishing<br>Mining and quarrying -0.72<br>Manufacturing 2.80<br>Electricity,. gas, and water supply -38.82 -2.33<br>Financing, insurance, real estate,<br>and business. services. -0.40<br>Community, social, and personal<br>. 2.88<br>services<br><!-- End of picture text -->

||<br>Sector<br>si|Sectoral ElasticityofSubstitution|ElasticityofSubstitution|
|---|---|---|
|Agriculture, hunting, forestry,and<br>pe<br>fishing|11.23||
|Miningand quarrying|-0.72||
|Manufacturing|2.80|-2.33|
|.<br>Electricity,gas, and watersupply|-38.82||
|Financing, insurance, real estate,<br>.<br>.<br>and business services|-0.40||
|Community, social, and personal<br>.<br>services|2.88||

<!-- Start of picture text --> Share of Syrians with work permit<br>80%<br>7% ———.:_*.S_ —_—_<br>60%<br>50%<br>40%<br>30%<br>20%<br>wr<br>o%<br>Minieg<br>agtcme. tng Migandcuanirgond querryig Menacung Manufecturing Sereeectgard ForenPann rues,rr, gran Community<br>business services<br>2017 2018 TM2019<br><!-- End of picture text --> <!-- Start of picture text --> Syrians with work permit<br>700<br>600<br>500<br>400<br>300<br>200<br>100<br>0 o_o mm =<br>Agriculture, Mining and Manufacturing Electricity, gas, - Financing, Community,<br>funnest quarrying and water supply eeecal corea os<br>business services<br>2017 2018 TM2019<br><!-- End of picture text -->
Nations Statistics Division (UNSD). This dataset provides detailed information on global merchandise trade, encompassing the import and export of goods and services between countries and regions. In this study, we limit the analysis to trade in merchandise only, since data on trade in services are very limited. Moreover, following the standard convention in empirical trade studies, we use the value of imports reported by Jordan’s trade partners to capture the value of Jordan’s exports to its partners.

Trade trends provide insights into Jordan's economic health and growth prospects. Analyzing trade data helps understand how Jordan is integrating into the global economy and which sectors are driving export growth. Moreover, understanding trade patterns helps Jordan identify opportunities to diversify its economy. Over-reliance on a few key exports or trading partners can make the economy vulnerable to external shocks. By analyzing trade trends, Jordan can strategize to broaden its export base and reduce dependency on specific markets.

Jordan has pursued a policy of trade liberalization in the past few decades. Between 1997 and 2024, Jordan signed eight trade agreements (see Table 2). The most important is the PanArab Free Trade Area, signed in 1997 with the Middle East and North Africa (MENA) countries. In 2021, it accounts for a third of Jordan’s total exports.

**Table 2. Jordan’s Trade Agreements**

|**Agreement Name**|**Signature**|**Entry**<br>**into**<br>**force**|**Partners**|
|---|---|---|---|
|Pan-Arab Free Trade Area<br>(PAFTA)|01/19/1997|01/01/1998|MENA|
|EU - Jordan|11/24/1997|05/01/2002|EU, Jordan|
|United States - Jordan|10/25/2000|12/17/2001|Jordan, United States|
|EFTA Agreement|06/21/2001|09/01/2001|Iceland,<br>Liechtenstein,<br>Norway, Switzerland, Jordan|
|Agadir Agreement|02/25/2004|03/27/2007|Arab<br>Republic<br>of<br>Egypt,<br>Jordan, Morocco, Tunisia|
|Jordan - Singapore|05/16/2004|08/22/2005|Jordan, Singapore|
|Canada - Jordan|06/28/2009|10/01/2012|Canada, Jordan|
|United Kingdom - Jordan|11/05/2019|05/01/2021|Jordan,United Kingdom|

**Source:** World Trade Organization (WTO). <u>WTO | Regional trade agreements</u>

percent in 2000 to 4.0 in 2020 (Figure 10). Even though trade openness (measured as the sum of exports and imports as a percentage of GDP) has historically been above 100 percent (110.3 percent in 2000), it has been decreasing, hitting a low of 65.3 percent in 2020 (due to the pandemic) and reaching 81.4 percent in 2021 (Figure 11) toward pre-pandemic values.

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# **Figure 10. Tariff rates considerably decreased**

**Figure 11. Trade openness also decreased** Total trade as percentage of GDP

Tariff rate of all products in percentage <!-- Start of picture text --> 20 160<br>140<br>15<br>120<br>10<br>100<br>5<br>80<br>0 60<br>Source: Authors’ elaboration using data from Our Source: Authors’ elaboration using data from Our<br>World in Data (https://ourworldindata.org/) World in Data (https://ourworldindata.org/)<br>2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020<br><!-- End of picture text --> Unlike other developing economies that promoted trade liberalization, Jordan’s export sector did not grow as expected. Total exports as a percentage of GDP dropped from 41.8 percent in 2000 to 36.7 percent in 2019 after peaking at 56 percent in 2008 (Figure 12). At the same time, imports have increased more than exports and the total trade balance has become even more negative (Figure 13).

**Figure 12. Exports decreased after 2008** Exports as percentage of GDP

**Figure 13. Trade balance has remained negative**

Total balance, billions US$ <!-- Start of picture text --> 60 JC<br>50<br>40<br>30<br>20<br>Source: Authors’ elaboration using data from the World<br>Integrated Trade Solutions<br>(https://wits.worldbank.org/).<br>Black dotted line in the year of implementation of the<br>JC.<br>2000 2002 2004 2006 2008 2010 2012 2014 2016 2018<br><!-- End of picture text --> <!-- Start of picture text --> 0 JC<br>-4<br>-8<br>-12<br>-16<br>-20<br>Source: Authors’ elaboration using data from the World<br>Integrated Trade Solutions<br>(https://wits.worldbank.org/). Black dotted line in the<br>year of implementation of the JC.<br>2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020<br><!-- End of picture text --> Export patterns remained relatively stable in terms of products exported as a share of total exports. Even though the export of chemicals (fertilizers and pharmaceutical) has held the largest share of exports for most of the time, in the period 2004-2006 textiles and clothing became the largest and then experienced a decline and slow recovery from 2008. Surprisingly, the number of products exported by Jordan has decreased nearly 22 percent, from 2,606 products in 2000 to 2,021 products in 2021. Within manufacturing, the main winner was the labor-intensive clothing sector, which increased from 6 percent of total exports in 2000 to 25 in 2007 and 9 percent in 13 | P a g e
<!-- Start of picture text --> —— Chemicals ——Vegetable 50<br>—— Machinery and Electronics ©——=Minerals 45<br>—Textiles ——tTransportation<br>—— Clothing 40<br>35<br>30<br>25<br>20<br>15<br>10<br>5<br>0<br>° N st w ioe) ° N st wo ioe) °o<br>S fo) ro) ro) ° a a i od a Q<br>SoN ro)N SoN SoN SoN °N °N oON =)N °N i.)N<br><!-- End of picture text -->
<!-- Start of picture text --> ——Middle East & North Africa ——South Asia 70<br>——East Asia & Pacific —— Europe 60<br>— United States ——Sub-Saharan Africa<br>50<br>40<br>30<br>20<br>10<br>0<br>fen) N t+ wo oo oO N 9 wo o oO<br>Oo Oo oO Oo fo) a a a al a N<br>oO oO oO oO oO fen) oO oO oO oO oO<br>NNNNNNNNNNN<br><!-- End of picture text --> <!-- Start of picture text -->
| | |<br>|||<br>| | |<br>|||<br>|| |<br>|||<br>| | |<br>|||<br>|<br>rs rn ee Nee ] Oe TT |<br>|||<br>| I |<br>II|<br>I I |<br>|||<br>| |<br>|I|<br>| |<br>qo os Seon Renlioees Seno 6 neein me<br><!-- End of picture text -->
Because of the US-Jordan FTA in the year 2000, the largest share of exports to the United States are textiles and clothing, but other sectors such as chemicals have surged in the past few years. There are interesting patterns when zooming in on the share of products exported from Jordan to the United States since 2015. While the textiles and clothing sector remains the highest exporting sector, accounting for 66.8 percent of total exports in 2021 (86.6 percent in 2015), the chemicals sector has gained relative importance, growing from 1.9 percent in 2015 to 16.4 percent in 2021. In terms of US$, this means an increase from US$28 million to US$425 million in 2021 (textiles increased from US$1,251 million to US$1,544 million).

# **4. The Impact of the JC**

The JC had a clear objective of boosting Jordan’s exports to the EU. Figure 17 shows the evolution of Jordan’s export value by main commodity sector. As it can be noted, only for manufacturing the country experienced a sharp change in export values flowing to the EU zone after 2016. The observed change in trend was not immediately after the JC was implemented but it rather took off in 2020-2021. Later in this study, we suggest that a skill mismatch of Syrian workers may explain the weak integration of Syrian refugees in the labor market early after the implementation of the JC, therefore affecting the effectiveness of the agreement in boosting targeted exports.

**Figure 17: Jordan’s total export value to EU in Agriculture, Mining and Quarrying, and Manufacturing**

<!-- Start of picture text --> Jordan's Exports to EU<br>by Main Sector<br>Agriculture Mining and Quarrying<br>800 JC JC<br>600<br>400<br>200<br>0<br>2000 2005 2010 2015 2020<br>Manufacturing<br>800 JC<br>600<br>400<br>200<br>0<br>2000 2005 2010 2015 2020<br>Year<br>Export Value in M US$<br><!-- End of picture text -->

**Source:** Authors’ elaboration using data from the World Integrated Trade Solutions (WITS). The vertical red dotted line splits the periods before and after the implementation of the JC.

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# **5. Hypothesis Evaluation**

# **5.1. The Jordan Compact**

The JC was signed in February 2016 between the country of Jordan and countries in the EU as a response to the Syrian crisis.<sup>4</sup> The JC includes measures to stimulate economic growth and create job opportunities in Jordan, particularly in sectors that can absorb both Jordanian workers and Syrian refugees, facilitating Jordan's access to European markets, through the relaxation of ROO for Jordanian exports (Abreha and Robertson, 2023). To achieve these goals, the JC focused in boosting the agriculture, construction, and manufacturing industries in Jordan by integrating Syrian refugees into 18 EU-focused Special Economic Zones (SEZs) to stimulate exports. In this study we focus on manufacturing industries, whose production in SEZs has tarifffree access into the EU market if: i) these industries have at least 15% Syrian employment, and ii) 200,000 work permits for Syrians in SEZs are issued.

The JC faced several challenges to implementation. The first problem is that targeted sectors are typically informal sectors, affecting the issuance of work permits. In 2017, only two manufacturing companies in SEZs were exporting to the EU and only 60,000 permits have been issued. The number of exporting companies increased to eleven by 2021. Second, commuting constraints impede integration. SEZs are far away from urban centers where the Syrian refugee population lives. The Jordanian government is aware of the commuting challenges faced by workers and is actively working on improving infrastructure to better connect urban centers and SEZs. Efforts to formalize sectors are also ongoing to facilitate better integration.

# **5.2. Approach**

To assess the true impact of the JC in boosting Jordan’s manufacturing exports to the EU we conduct a difference-in-differences regression analysis. Figure 19 suggests China is a natural control to use. Formally, we estimate the following regression equation E E 0 1 2016 3 2016 + ε ee ee ee ee EEtt = ββ + ββ ∗PPEEPPtt + ββ EEUU + γγPPEEPPtt ∗EEUU + λλXX where E E is the value of Jordan’s exports in manufacturing at year , 2016 is a dummy equal to one for year in 2016 and onwards, EU is a dummy variable equal to one if destination ee of exports is EU and zero if destination of exports is China in year EEtt , and tt PPEEPPtt 2016 is a dummy equal to one if exports flow to EU as of 2016. tt is the parameter of interest. is the set ee tt PPEEPPtt ∗EEUU of pre-trends controls. Robust standard errors at the country level. For the analysis, we exploit all ee γγ XX data available in WITS disaggregated by sector and destination country, ranging between 20022022.

> 4 Signed in February 2016 at the London Conference, which was hosted by the UK, Germany, Kuwait, Norway, and the United Nations.

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# **5.3. Hypothesis 1: EU exports relative to other countries**

To study whether the JC was followed by an increase in exports relative to a comparison group of countries we overcame the identification challenge of heterogeneous impacts of rising exports. The empirical approach we implement is a gravity model. A gravity model is a framework used in economics and geography to predict and describe the flow of goods, people, or information between two locations. In this paper we use it to describe the flow of goods. Larger economies are assumed to have greater capacity to generate and attract flows. Physical distance is commonly used, but economic distance (e.g., trade barriers, cultural differences) can also be considered. In this paper, we use gravity to conduct a difference-in-differences analysis to move towards identifying impact. The model helps to understand trade patterns and the impact of trade policies.

Table 3 reports the regression results. The second column reports estimation results with pretrends controls. Although manufacturing exports to EU are larger than those to China, and that exports significantly increased to both destinations after 2016, the causal effect of implementing the JC is not statistically different from zero in any of the specifications. When controlling for pretrends the estimated coefficient of interest estimates a positive but insignificant impact.

**Table 3: Difference-in-differences estimation results**

||Value of Exports(M US$)|Value of Exports(M US$)|
|---|---|---|
|Post 2016|240.76***|240.76**|
||(72.03)|(88.80)|
|EU|109.94***|47.49|
||(32.62)|(29.30)|
|**Post 2016 * EU**|**-31.41**|**31.03**|
||(103.48)|(124.84)|
|Observations|42|42|
|R-squared|0.484|0.552|
|Controls|No|Yes|

**Notes:** Robust standard errors in parentheses. ***p<0.01, **p<0.05, *p<0.1 Post 2016 accounts for a dummy variable equal to one for all years from 2016 onwards and zero otherwise; EU is a dummy variable equal to one if destination of exports is EU and zero if China; Post 2016 * EU is the interaction term and variable of interest.

# **5.4. Hypothesis 2: MFG exports relative to other sectors**

As suggested by the descriptive evidence in section 2.3., the Jordanian government was successful in integrating Syrian refugees into manufacturing. Therefore, manufacturing exports should rise everywhere relative to other sectors. Figures 18 and 19 reveal manufacturing exports increased to other main destinations after 2016, even to those destinations unaffected by the JC.

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**Figure 18: Jordan’s total export value in manufacturing**

<!-- Start of picture text --> Jordan's Manufacturing Exports<br>by Main Region<br>EU East Asia<br>3000<br>JC JC<br>2000<br>1000<br>0<br>MENA South Asia<br>3000<br>2000 JC JC<br>1000<br>0<br>2000 2005 2010 2015 2020 2000 2005 2010 2015 2020<br>Year<br>Export Value in M US$<br><!-- End of picture text -->

**Source:** Authors’ elaboration using data from the World Integrated Trade Solutions (WITS). The vertical red dotted line splits the periods before and after the implementation of the JC.

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**Figure 19: Jordan’s total export value in Manufacturing, by main trade partner**

<!-- Start of picture text --> Jordan's Manufacturing Exports<br>by Main Partner<br>China EU India<br>3000<br>JC JC JC<br>2000<br>1000<br>0<br>Saudi Arabia United Arab Emirates United States<br>3000<br>2000 JC JC JC<br>1000<br>0<br>2000 2005 2010 2015 2020 2000 2005 2010 2015 2020 2000 2005 2010 2015 2020<br>Year<br>Export Value in M US$<br><!-- End of picture text -->

**Source:** Authors’ elaboration using data from the World Integrated Trade Solutions (WITS). The vertical red dotted line splits the periods before and after the implementation of the JC.

We assess the relative importance of the increase in manufacturing exports to Jordan’s main trade partners relative to other sectors. We consider total manufacturing and nonmanufacturing exports to EU and countries in Figure 19, the main group of Jordanian manufacturing importers. Figure 20 reports Jordan’s total manufacturing and non-manufacturing exports to Eu and countries in Figure 19.

# **Figure 20: Jordan’s total export value in non-manufacturing and manufacturing to main trade partners.**

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<!-- Start of picture text --> Non-Manufacturing Manufacturing<br>JC JC<br>6000<br>4000<br>2000<br>0<br>2000 2005 2010 2015 2020 2000 2005 2010 2015 2020<br>Year<br>Value of Exports in M US$<br><!-- End of picture text -->

**Source:** Authors’ elaboration using data from the World Integrated Trade Solutions (WITS). The vertical red dotted line splits the periods before and after the implementation of the JC.

regression equation: E E 0 1 2016 3M M 2016 ∗M M + ε where E E is the value of Jordan’s exports at year ee ee , 2016 is a dummy equal to one for ee ee SSee EEtt = ββ + ββ ∗PPEEPPtt + ββ + γγPPEEPPtt + λλXX year in 2016 and onwards, M M is a dummy variable equal to one if export category is ee manufacturing in year EEtt and zero otherwise, and 2016tt PPEEPPtt ∗M M is a dummy equal to one if ee exports flow is manufacturing exports as of 2016. tt is the parameter of interest. is the set of ee tt PPEEPPtt pre-trends controls. Robust standard errors at the country level. For the analysis, we exploit all ee γγ XX data available in WITS disaggregated by sector and destination country, ranging between 20022022.

**Table 4: Difference-in-differences estimation results**

||Value of Exports(M US$)|Value of Exports(M US$)|
|---|---|---|
|Post 2016|190.83*|190.83|
||(104.35)|(128.65)|
|Manu|1961.92***|1661.47***|
||(235.55)|(104.52)|
|**Post 2016 * Manu**|**2236.23*****|**2536.69*****|
||(485.06)|(533.12)|

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Observations 42 42 R-squared 0.85 0.92 Controls No Yes **Notes:** Robust standard errors in parentheses. ***p<0.01, **p<0.05, *p<0.1 Post 2016 accounts for a dummy variable equal to one for all years from 2016 onwards and zero otherwise; Manu is a dummy variable equal to one if exports are manufacturing exports and zero otherwise; Post 2016 * Manu is the interaction term and variable of interest.

There are positive and significant effects of rising manufacturing exports after 2016 relative to other sectors, in both specifications without and with pre-trends, of more than US$2,000 million.

# **6. Conclusion**

highlights the complex interplay between labor market integration and export-oriented economic strategies. The Jordan Compact serves as a critical case study demonstrating that targeted cooperation between a host country and external partners, such as the EU, can effectively facilitate refugee integration into the labor force, particularly in manufacturing sectors. This successful integration supports the broader economic stability of the host nation, as evidenced by the increased participation of refugees in manufacturing jobs, a sector that is crucial for economic growth and labor demand.

through education, investment, and community resilience—showed positive outcomes, the second set of measures, which aimed to boost Jordan’s exports to the EU by relaxing rules of origin, did not yield the expected shift in Jordan's export basket towards the EU. This suggests that while domestic labor market integration can be effectively supported by international cooperation, translating this into broader export growth requires more than just regulatory easing; it may necessitate deeper structural reforms or additional supportive measures.

Overall, this study contributes valuable insights to the literature on refugee integration and the economic impact of forced migration, particularly in the context of export-oriented economies. It underscores the importance of comprehensive, multi-faceted approaches to managing largescale refugee movements, emphasizing that successful economic integration of refugees requires both domestic labor market strategies and international trade policies that are well-aligned with the host country's economic capacities and challenges.

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