MIDDLE EAST JOURNAL M VOLUME 62, NO. 2, SPRING 2008 DOI: 10.3751.62.2.14 How Favoritism Affects the Business Climate: Empirical Evidence from Jordan Markus Loewe, Jonas Blume, and Johanna Speer This article, based on research conducted in Jordan, discusses how favoritism affects the business climate. Jordan’s business climate is mediocre in interna- tional 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 “us- ing 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 so- cial 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 accountabil- ity 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 Markus Loewe is senior researcher at the German Development Institute/Deutsches Institut für Entwick- Deutsches Institut für Entwick- lungspolitik (DIE), Bonn. Jonas Blume is now working for the KfW Development Bank, Frankfurt/Main (DIE), Bonn. Jonas Blume is now working for the KfW Development Bank, Frankfurt/Main and Johanna Speer for the GfA Consulting Group, Hamburg. The views expressed in this article are those of the authors and not necessarily those of the aforementioned institutions. This article is based on much of the same research, but with a somewhat different focus, as presented in: Markus Loewe et al., The Impact of Favoritism on the Business Climate in Jordan (Bonn: German Development Institute/Deutsches Institut für Entwicklungspolitik/DIE, 2007). 1. See World Bank, World Development Report 2005: A Better Investment Climate for Everyone (Washington, DC: World Bank, 2004), Box 2.1, p. 37. 2. See Kate Hutchings and David Weir, “Guanxi and Wasta: A Comparison,” Thunderbird Interna- tional Business Review, Vol. 48, No. 1 (2006), pp. 141–156. © Middle East Institute. This article is for personal research only and may not be cop- ied or distributed in any form without the permission of The Middle East Journal.