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Figure 7. Gross Domestic Product (GDP) by Sector of Origin, 1978 and 1987

Source: Based on information from Jordan, Central Bank of Jordan, Monthly Statistical Bulletin, Amman, April 1979, Table 40 and Jordan, Department of Statistics, Statistical Yearbook, 1987, 383.

The large contribution of the service sector to GDP, versus the small contribution of the industrial and agricultural sectors, has long been a source of concern to economic planners. In the late 1980s, Jordan's aggregate private and public service sector continued to contribute about 60 to 65 percent of total GDP. This figure was exceeded only in some of the world's most industrially advanced market economies. Figures nearly as high were reached by several of the world's poorest economies, however, where unproductive surplus labor was absorbed into the service sector. Some segments of the service sector, such as banking and engineering, relied on advanced and sophisticated skills. Nonetheless, the sector's overall contribution to GDP remained roughly constant in the 1970s and 1980s, even though its share of total employment increased significantly. The relative lack of growth called into question the overall efficiency and productivity of the service sector.

In 1987 the government, which employed more than 40 percent of the labor force and more than 67 percent of service sector employees, contributed about 18 percent to GDP. Retail and wholesale trade--which included well-developed hotel and restaurant subsectors--was the second largest contributor to GDP. This sector generated 17 percent of GDP in 1987, a share that had declined about 2 percent over the preceding decade. Finance, banking, real estate transactions, insurance, and business services made up 8 percent of GDP. Transportation and communications contributed about 11 percent of GDP (see fig. 7). Manufacturing, mining, agriculture, and construction--the sectors that produced consumer or capital goods or inputs--together accounted for only about 32 percent or less of GDP. The steady growth of manufacturing, which climbed from about 4 percent of GDP in 1970 to almost 15 percent in 1987, was regarded as a promising sign. Agriculture--including animal husbandry, forestry, and fishing--constituted almost 40 percent of GDP in the 1950s and about 15 percent of GDP in the early 1970s. By 1987, however, its share had declined to 7 percent, which caused the government considerable concern. Construction's contribution doubled between 1970 and 1975, reaching about 8 percent of GDP as spending on both public works and private housing increased, and then stabilized. By 1987 construction had declined to 6 percent. Utilities such as electricity and water supply accounted for 3 percent of GDP, and mining contributed 4 percent in 1987.

Jordan's demand structure in terms of GDP consumption was distorted. In 1986 the government consumed more than 26 percent of GDP, a figure that was the fourth highest in the noncommunist world. Private consumption was about 1000 t 87 percent of GDP, also among the highest in the world. Consumption exceeded GDP by 13 percent, the highest margin in the world except for the Yemen Arab Republic (North Yemen). Jordan's exports of goods and nonfactor services (i.e., freight, insurance, and travel) amounted to 49 percent of GDP, and its negative resource gap--the excess of imports over exports as a proportion of GDP--was minus 44 percent, by far the highest in the world. Inflows of capital from external sources financed all gross domestic investment (31 percent of GDP) and part of domestic consumption.

Insofar as consumption exceeded GDP and the difference was made up partially by aid and remittances, Jordan did not fully earn the growth it experienced in the 1970s and early 1980s. Jordan's GDP, which rose from about US$2 billion to US$4 billion during the period, was only between 75 percent and 90 percent of its GNP. At the same time, annual inflows of unrequited--or, as the Jordanian government sometimes called them, "unrequested" transfer payments-- were in some years more than US$1 billion. These unearned transfers, in the form of foreign aid and expatriate worker remittances, permitted Jordan to register only a relatively small current account deficit. In several years, Jordan actually registered current account surpluses despite outspending its GDP by the highest margin in the world. In 1980, for example, Jordan had a current account surplus of almost US$375 million. As foreign aid declined and remittance income tapered off, Jordan suffered a current account deficit of US$390 million in 1983. By 1987 the current account deficit had shrunk considerably, because a reduced trade deficit more than compensated for declining aid and remittance inflows (see table 5, Appendix).

The total amount of foreign aid that Jordan received was difficult to pinpoint. Jordan never received all the aid it was promised, and some aid was in the form of loans at concessionary interest rates or in the form of commodities and services. Although the amount of aid varied from year to year, it was always substantial. In 1980, for example, foreign aid constituted 46 percent of government revenue before borrowing in 1985, it constituted 30 percent of preborrowing revenue.

Financial aid was received mostly from the Arab Organization of Petroleum Exporting Countries (AOPEC). At the Baghdad Conference in November 1978, seven countries promised to donate US$1.25 billion annually to Jordan for ten years as a "war chest" to fund its ongoing confrontation with Israel. Libya and Algeria reneged on their commitments from the outset, and Iraq stopped paying after the Iran-Iraq War started in 1980. In 1984 Qatar and the United Arab Emirates stopped paying except on an ad hoc basis, and in 1985 Kuwait suspended its payments. Only Saudi Arabia consistently met its payment obligations, which amounted to US$360 million per year disbursed in six equal bimonthly installments. Total Arab aid to Jordan stood at about US$750 million in 1980, with aid from non- Arab countries boosting total aid to about US$1.3 billion. Arab aid fell to about US$670 million in 1983 and to about US$320 million in 1984. In 1988, according to Jordanian government figures, financial aid totaled about US$474 million and development aid and soft loans (bearing no interest or interest below the cost of the capital loaned) totaled about US$260 million, yielding a total of US$734 million in outside assistance. This figure included a United States aid package that authorized US$28 million of military training, US$20 million in budget support, and up to US$80 million in commodity credits. The figure also included United Nations Relief and Works Agency (UNRWA) for Palestine Refugees in the Near East aid of about US$10 million, World Bank soft loans in excess of US$100 million, and Arab aid of at least US$350 million. The European Economic Community authorized US$112.5 million in aid to Jordan to be paid in installments between 1987 and 1991. Worker remittances c11, the otother main source of external income, could not be estimated precisely in 1988, but exceeded US$1 billion (see Remittance Income , this ch.).

Foreign direct investment and reexports, particularly of goods destined for Iraq, also contributed to GDP growth. The government of Jordan was one of only a few Arab governments that chose to stake its future on an economic system that, if not laissez-faire, was by regional standards free, open, and market oriented. In the 1980s, however, Jordan began to compete for foreign investment with Egypt, which was pursuing its own open-door policy. On the one hand, Jordan's open-door policy posed risks insofar as the country had to compete and cooperate with Arab governments that had protectionist and subsidized state-controlled economies. On the other hand, the policy was particularly effective because it was so rare in the Middle East. Furthermore, with the devastation of Beirut after the start of Lebanon's Civil War in 1975, Jordan was at least partially successful in replacing that city as a prime regional commercial center. In this role of merchant middleman, Jordan became an entrepôt and conduit for trade and investment between the West and the rest of the Arab world. It encouraged transit trade through duty-free zones. Its open-door policy acted as a magnet for inflows of foreign direct investment. It provided tax concessions to both domestic and foreign businesses. Until 1988 it maintained a sound and freely convertible currency backed by substantial gold reserves. A sound currency, combined with relative political stability, made Jordan a safe haven for Arab bank deposits. Jordan also established a strong professional service sector, including well-developed banking and insurance industries that catered to international business. Total net foreign direct and portfolio investment in Jordan could not be estimated, however, because foreign investment was offset by capital flight abroad. Estimates of Jordanian capital invested abroad ranged from US$4 billion to $US40 billion. Net direct investment in Jordan was estimated at US$23 million in 1985.

Data as of December 1989