Students’ findings

[Yusuf Mansur]

This summer, to quench the thirst for teaching, I taught managerial economics, an introductory course to economics, to MBA students at a Jordanian university. One of the requirements of the course was that students form groups to investigate economic issues. The research and findings, even in a short summer semester, shed light on important topics and distortions in the Jordanian economy. I summarise the highlights of some of the thought-provoking findings below.

Two groups investigated separately, using different, albeit basic, statistical techniques the relationship between the growth of the GDP and the unemployment rate over several years, using published data. According to Okun’s Law, a well-known and empirically observed phenomenon in economics, there is an inverse relationship between GDP growth and unemployment. In other words, when the GDP grows, unemployment is supposed to fall. The students found this to be untrue in the case of Jordan.

The findings of the two groups contradict basic economic logic and Okun’s Law (known widely as a rule of thumb). One group even found a weak relationship between unemployment and oil prices; as oil prices rose, unemployment in Jordan fell with a lag of several months. In other words, this finding underscores that Jordan is more of an oil economy without oil.

Another group studied the relationship between the world price of rice, a basic food staple in Jordan, and the quantities of rice consumed domestically. Given that rice is an imported commodity, daily prices are published worldwide and imported quantities are available on the Department of Statistics site. The major finding was that as the price of rice increased worldwide, domestic consumption seemed unaffected or increased, which negates the most important law in economics, the law of demand (there is an inverse relationship between price and quantity demanded in a certain period, provided that other things remain the same).

One plausible explanation is the possibility of a cartel regulating prices upwards in Jordan, which points to a possible and huge distortion in competition in the market.

One group studied remittances and their impact on the banking sector in Jordan. Their finding was that remittances (about 12 per cent of the GDP and a major source of foreign currency, purchasing power and investment spending for Jordanians) only affected deposits in Jordanian banks, but had no discernible effect on credit facilities offered to borrowers.

The finding alludes to two major observations: the banks pile the deposits without lending, which causes major efficiency losses to the banking system; the banks are not operating in a fully competitive environment because with competition they would have offered more loans as more remittances were funnelled into the banking system.

Note that such research, with important conclusions and policy implications, was generated by students who, on the main, never studied economics before. Furthermore, the research took a few days to conduct, yet the results are extremely relevant, if not important, to Jordanian policy makers, NGOs, consumers and businesses.

One implication is that Jordan badly needs an independent think tank that can do this type of research on regular basis to track the developments and competitiveness of the economy in an objective, focused and timely manner.

The question one day should not be why Jordan does not have any independent think tank, but why it has so many. I hope the day this question is asked comes soon. JordanTimes 14/8/2012