Long-Term Policy Options for the Palestinian Economy
In light of deteriorating economic relations between Israel and the West Bank and Gaza, and suspended peace negotiations, it is timely at this juncture between the lapsed Interim Period and a final status agreement to examine past experience with a...
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| Language: | English en_US |
| Published: |
Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2002/07/2501140/long-term-policy-options-palestinian-economy http://hdl.handle.net/10986/15274 |
| Summary: | In light of deteriorating economic
relations between Israel and the West Bank and Gaza, and
suspended peace negotiations, it is timely at this juncture
between the lapsed Interim Period and a final status
agreement to examine past experience with a view to
assessing the policy choices facing Palestinian policymakers
in the future. The post-Oslo experience points to failed
economic normalization and income convergence with Israel.
Several reasons for these failures have been advanced,
including poor implementation of the Paris Protocol, as well
as fundamental flaws inherent to the protocol itself. The
experience under the Paris Protocol illustrates the degree
to which political and economic factors are intertwined;
both types of factors need to be addressed in a
comprehensive framework. The fact that political pressures
from Israeli security concerns introduced severe economic
hardship on the Palestinians and threatened newly-gained
Palestinian autonomy contributed to the unraveling of the
interim agreement. The economic environment of uncertainty,
risk, costly transactions, and inadequate legal, regulatory
and financial institutions hampered private sector
development and especially Palestinian-Israeli partnerships
and business networks at the firm level, effectively
weakening an important tie that holds civil society
together. These factors further undermined Palestinian
economic growth, laying the foundation for political crisis
and civil conflict. Given the problems associated with the
existing policy framework, this analysis examines
alternative policy options that will face Palestinian
policymakers in the event of a peace agreement with Israel.
These future policy choices relate to trade, labor mobility
to Israel, and the business environment and associated
public-private interactions. In a first stage, each policy
area is analyzed separately, that is, in a partial
equilibrium context independent of the others without
accounting for broader intersectoral relationships. In a
second stage, the analysis brings together these separate
areas into an integrated framework. A range of assumptions
vis-e-vis the nature of borders between West Bank and Gaza
and Israel is delineated, tying together the trade, labor
and private sector development considerations to measure
their combined impact on growth prospects. The analysis
develops scenarios to reflect different combinations of
future policy options linked to the nature of borders with
Israel. This simulation exercise illustrates the relative
merits of each scenario, the associated trade-offs, and the
prospects for economic growth in the event of a peace
agreement and a completion of final status negotiations. |
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