The economic opportunity cost for countries located in crisis zones: Evidence from the Middle East

Whether the Middle East is a blessed or damned region is a matter of perspective and evidence. This paper investigates the effect of regional instability on countries caught in such conflict solely because of their location. By use of an interrupted time series model, an unrestricted error correction model, and the incremental capital output ratio (ICOR), the indirect economic costs of regional unrest are estimated for Jordan, as an exemplar of Middle Eastern countries. Jordan has lost during 24 years of regional turmoil the equivalent of 40–72% of its 2012 gross domestic product (GDP), or US$12.6 billion to US$22.7 billion. Furthermore, it has lost US$2.3 billion of foreign direct investment (FDI) and its return, which are higher than the annual FDI inflows in most of the years covered by this study. This substantial loss is a warning sign that should be seriously considered by politicians and economists in the Middle East, especially for countries whose resources are already constrained.

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