Lebanese Economic Crisis

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  Lebanon and the Arab Uprisings

  In the Eye of the Hurricane

  • Maximilian Felsch, Martin Wählisch(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  While Lebanon has not experienced any major political destabilization as a result of the Arab uprising and the war in neighboring Syria, the country embarks now on an uncertain economic future. This uncertainty manifests itself in particular in the indirect, as opposed to direct, effects associated with the regional crisis.

  Studies which have focused on estimating the direct effects of the regional upheaval typically focus on the Syrian refugee crisis in Lebanon. The cost to the Lebanese economy as a result of the influx of Syrian refugees is estimated at around 2–3% of income.

  While existing studies focus on the direct costs of the political turmoil and the Syrian crisis for Lebanon, this chapter examines the economic costs, which include both direct and indirect costs. Our economic cost approach is based on the idea that the regional security crisis has sent Lebanon on a different economic growth trajectory than what the country would have been on without it. The difference between the counterfactual conflict-free and actual conflict-exposed development path can be understood as a conflict tax. This conflict tax has been extremely high for Lebanon and kept it below a 1% long-term growth path for most of the time since 1970.

  An examination of the conflict tax has revealed that whenever regional instability spills over into Lebanon, the country’s total factor productivity declines. While Lebanon has regularly shown resilience to geopolitical shocks in the sense of a great capital formation capability, the country is more subject to a crisis resiliency myth than a resiliency miracle. Crises regularly cause Lebanon’s TFP to decline, which offsets its ability to accumulate capital. If the crisis persists, Lebanon forgoes roughly 3% of income annually. With the power of compounding, the cumulative economic costs are then within ten years more than 30% of GDP. For the foreseeable future, Lebanon will have to be concerned more with finding a way to survive rather than to thrive.

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