Peace Economics, Peace Science and
Public Policy
Volume 14, Issue 1
2008
Article 1
An Economic Development Road Map for
Promoting Israeli-Palestinian Cooperation
Miki Malul∗
Yuri Mansury†
Tad Hara‡
Sidney Saltzman∗∗
∗
Department of Public Policy and Administration, Ben Gurion University,
[email protected]
†
KDI School of Public Policy and Management, [email protected]
‡
Rosen College of Hospitality Management & Dick Pope Sr. Institute of Tourism Studies,
University of Central Florida, [email protected]
∗∗
Cornell University, [email protected]
c
Copyright 2008
The Berkeley Electronic Press. All rights reserved.
An Economic Development Road Map for
Promoting Israeli-Palestinian Cooperation∗
Miki Malul, Yuri Mansury, Tad Hara, and Sidney Saltzman
Abstract
In this paper we propose an interregional framework as a policy tool for identifying sectors
that can stimulate Palestinian economic development while recognizing the reality of the IsraeliPalestinian economic interdependencies. Specifically, this paper emphasizes the potential role of
bi-national trade channels to promote Israeli-Palestinian cooperation. To that end, we apply an
interregional input-output model to 14 sectors of the Palestinian and Israeli economies and their
trading relationships. We then investigate the impact of an exogenous foreign injection under
alternative trade scenarios. The results suggest that foreign aid injections to the Banking and
Construction sectors in Palestine make the highest impact on Palestinian output. On the other
hand, if the primary objective is to promote employment, then injections should be concentrated
on the Community, Social, Personal and Household Services sectors.
KEYWORDS: Middle East, cooperation, economics, input-output
∗
We thank Walter Isard of Cornell University for making it possible for us to do research on this
problem and for his encouragement.
Malul et al.: An Economic Development Road Map
Introduction
At least since the early 1990s, there have been intermittent but persistent and
often intense efforts to provide a political framework for resolving the IsraeliPalestinian conflict.1 The most relevant of these efforts is being made by a group
of four nations/institutions identified as the “Quartet” (the European Union,
Russia, the United Nations and the United States). The U.S. developed and, along
with the rest of the Quartet, is promoting the Road Map for Peace in the Middle
East, originally proposed in 2002, which calls for Israel and the Palestinian
Authority to negotiate an economic and political settlement. It was hoped that
this would ultimately lead to a permanently secure and peaceful region following
the establishment of a Palestinian state. This Road Map envisions a three-phase
process, which is summarized as follows, to achieve this goal:
“Phase 1: Ending Terror and Violence, Normalizing Palestinian Life and
Building Palestinian Institutions….;
Phase II: Transition: An Independent Palestinian State is Created with
Provisional Borders and Attributes of Sovereignty….;
Phase III: Permanent Status Agreement and End of Israeli-Palestinian
Conflict…”
A complementary road map that focuses on the economic aspect was
introduced in January 2004 by the “Aix Group,” which includes Israeli and
Palestinian academics, economists and officials, as well as members of
international institutions such as the European Union, the World Bank and the
International Monetary Fund. Their deliberations subsequently resulted in the
January 2004 publication of the “Economic Road Map: An Israeli-Palestinian
Perspective on Permanent Status,” which specifies certain trade and macroeconomic relations between the two parties as a model for development of the
third and final phase of the “Road Map for Peace.” The motivation for the
preparation of the Economic Road Map (Aix Group, 2004, p. 2) was the desire
“…to bring together Israeli and Palestinian perspectives on
economic questions related to future permanent arrangements
between the two sides and to create a forum for discussing and
analyzing different scenarios and propositions …(and)…focusing
on developing an “Economic Road Map” as a complement to the
political process started by the “Road Map”…supported by the
Quartet…”
The Economic Road Map (hereafter, ERM) covers a variety of topics,
including institutional and procedural recommendations concerning interregional
trade, human capital and labor mobility, and fiscal issues, as well as the bi1
We note that earlier attempts as articulated in the "Oslo Declaration of Principles" in 1992 failed
due to the escalation of violence in 2000.
Published by The Berkeley Electronic Press, 2008
1
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
national flows of money, capital, and direct investments. The ERM
acknowledges, however, that additional “road maps” are required to develop
effective plans that will help “…promote independence in defining economic
objectives and strategies, growth in both economies, the pursuit of policies that
acknowledge economic interdependencies, and the convergence of Palestinian
living standards with those of Israel.” (ERM, p.13) To achieve these goals, it is
necessary to understand not only the underlying structure of the Israeli and
Palestinian economies separately but also the extent of their economic
interdependencies.
This paper emphasizes the role of foreign aid as the key driver of
economic development and employment in the Palestinian Authority, as well as
the impetus of bi-national trade between Israel and Palestine. According to Bar-El
and Malul (2008), the injection of financial aid into the Palestinian economy by
the international community is primarily driven by the externalities that aidfinanced activities generate. Externalities are the indirect benefits of financial aid,
which can be broken down into two types: the first corresponds to the well-known
indirect economic benefits generated through the multiplier effects, which are the
main focus of this paper. The second are socio-political externalities that include
benefits not necessarily measurable in monetary terms, such as regional stability,
the easing of social tensions, and the diminution of international conflicts
(Bouillon 2004, Forman et al. 2000, Isard 2004, and Weede 2004). This study
examines the employment impact of financial aid that has been found to be highly
correlated with the second type of externalities. For example, Saleh (2004) found
a significant positive correlation between the Palestinian unemployment rate and
the number of suicide bombings, as well as total attacks.
Amid a severe economic contraction brought about by the protracted
regional conflict, Palestine remains the largest foreign-aid recipient in the world
today, receiving nearly US$ 300 of aid per capita in 2004. At a conference held in
France in December 2007, a total of 87 countries and international organizations
pledged $7.4 billion in aid to the Palestinians. This is the most ambitious fundraising effort in more than a decade aimed to help Palestinians create a viable,
peaceful and secure state of their own. In this paper we seek ways to optimally
allocate that aid in order to boost output and employment in Palestine.
We believe that such a tremendous injection of liquidity not only could
boost economic activities in Palestine, but through bi-national trade channels
could also impact the Israeli economy and thus generate positive spillover
externalities. Specifically, an aid injection will likely stimulate local production in
Palestine, which in turn leads to an increase in imports from Israel due to the nonsubstitutable nature of foreign input.
Note that during their struggle for independence, citizens of the weaker
economy often view increasing imports as a threat to their local nascent
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
2
Malul et al.: An Economic Development Road Map
industries, and as a sign of subordination to foreign interests. Such views rely on
one-sided arguments however, and fail to consider the secondary (and higherorder) feedback effects benefiting the home country through trade channels:
increasing imports enhance production in the trading partner, which in turn
requires additional inputs from the home country. Thus, understanding the impact
of foreign aid injection requires a simultaneous view of the two economies
allowing cross-border feedbacks to be fully endogenized.
The role of bi-national trade channels in this area must be given serious
consideration because of its largely-unexplored potential to promote IsraeliPalestinian cooperation. In turn, a change in the level of cooperation itself can
have a powerful impact on the extent of cross-border trade. For example, an
“optimistic” outcome towards a peaceful resolution (i.e., higher level of
cooperation) can conceivably be reflected in greater freedom of movement of
people and goods across the borders. On the other hand, a “pessimistic” scenario
may unfold following an escalation in armed conflict (i.e., lower level of
cooperation), which will likely lead to significant tightening of border controls.
In this paper, we propose a two-region framework as a policy tool for
identifying sectors that can stimulate economic development in Palestine, while
recognizing the reality of the Israeli-Palestinian economic interdependencies. We
employ an interregional input-output framework to investigate 14 production
sectors in the two economies and their trading relationships. 2 Using this
framework, we examine how sectoral production responds to changing trade
scenarios. Moreover, we examine its impact on the labor market and sectoral
employment in Palestine. The interdependencies in terms of magnitudes and
flows within and between these sectors of the two economies are identified, and
we dicuss their policy implications.
The remainder of this paper proceeds as follows: The next section briefly
reviews the literature, while section 3 provides a short summary of the
methodologies and data used in this analysis. Section 4 presents the results of the
analysis, and finally section 5 offers a brief summary of the paper, discussing its
strengths and limitations, policy implications, and areas for further research.
Review of the Literature
There is an established body of literature that examines the relationship between
trade and economic performance. To facilitate a comparison with the experiences
2
The analyses discussed in this paper are based on data from the late 1990s. Although the political
situation in the Middle East has changed very significantly since then, we believe the insights
revealed in our analyses are still of interest today, and can provide a useful framework for
additional analyses using more recent data
Published by The Berkeley Electronic Press, 2008
3
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
of other countries, we concentrate on studies that examine the link between trade
and national income levels. Thus, for example, we leave out the important
contribution of the endogenous growth models [see, e.g., Romer (1986) and Lucas
(1988); Rivera-Batiz and Romer (1991) advance a model of economic integration
and endogenous growth], which have triggered a new wave of empirical studies
that examine the impact of trade on income growth [e.g., Levine and Renelt
(1992); Edwards' (1993) survey of the literature]. This is because growth – the
permanent rate of change in the income level – is an inter-temporal process that
can only be treated appropriately within a dynamic model. In contrast, our interregional input-output (I-O) framework captures the short- to medium-term impact
of trade on income level, short enough that both prices and economic structure
can be assumed to be stable but, though sufficient time can be allowed for the
multiplier impact to be fully realized, certainly not long enough for the growth
trajectory to change.
We start with the classical comparative-advantage framework of David
Ricardo (1817), who claims that bilateral trade is always advantageous even if
one nation is, in absolute terms, more efficient in the production of all goods.3
Krugman and Obstfeld (2003) provide an excellent textbook treatment of this
framework that focuses on differences in resource endowments as the basis for
trade. In contrast, modern trade theories propose that even if countries have
similar endowments, a country can still benefit from trade if economies of scale
can be realized by specializing in a certain range of products (see the collection of
articles in Grossman, 1992).
Both classical and modern trade theories conclude that assuming constant
terms of trade and in the absence of market failures, the opening of the trade
borders is expected to free up resources allowing countries to specialize in certain
products, which in turn expands their production possibility frontiers, hence
raising the output levels of all countries. We stress here that theoretical works
rarely consider the role of inter-industry linkages. Among the few that do,
Deardorff (1979) introduces intermediate goods into the standard HeckscherOhlin model. He then establishes the expected pattern of specialization following
the relaxation of border controls. Deardorff is not explicit, however, on the impact
of lesser trade impediments on total output when I-O relationships exist in
production.
The empirical works in this area of research can be broken down into two
broad categories, namely (1) those that apply multi-country regression techniques
to pooled data from a large set of countries, and (2) single-country studies
employing either computable general equilibrium models or time series
3
We are aware that the Ricardian framework is constructed to examine the trade impact on
national income, whereas our I-O framework quantifies the impact on total output while holding
the value added constant.
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
4
Malul et al.: An Economic Development Road Map
econometrics. The majority of these studies found a positive effect of trade on
income. For example, using the instrumental variable technique, Frankel and
Romer (1999) found a quantitatively large and robust positive effect on income.
In particular, the authors found that in their sample of 150 countries, on average a
one-percent increase in the trade-to-GDP ratio increases per capita income by
about two percent.
Of particular relevance to our study here is the impact of trade when
economies are either at different development stages (i.e., developing vs.
developed) or of unequal sizes as measured by the dollar values of output. In this
regard, recent studies found that trade between poor and rich countries leads to the
promotion of economic prosperity mainly in poor countries, and therefore is
likely to mitigate the rising inequality between participating nations (Lindert and
Williamson 2001, Dollar and Kraay 2002).
Similarly, Ghose (2004) analyzed the trend in global inequality during
1981-1997 and found that developing countries achieved significantly faster
economic growth than the advanced industrialized countries so that actually the
apparent increase of income inequality among countries conceals a process of
convergence. For example, though a small number of developing countries
achieved significantly faster economic growth than the advanced industrialized
countries, they account for a majority of the world population. Thus, global
inequality in fact declined even though the inter-country income inequality
increased. That is, if one calculates the global inequality level (using, for example,
the Gini index) for individual countries (without consideration of their size), then
one will find the trend of growing inequality. However, if instead one calculates
the global population-weighted inequality, then according to Ghose the trend is
reversed and instead becomes one of decreasing inequality.
In the context of the link between free trade and multilateral cooperation,
Weede (2004) reviews studies in this area that employ quantitative methods. He
concluded that bilateral trade reduces the risk of war between pairs of nations
because war is likely to disrupt trade, which means that the higher the level of
trade in a pair of nations, the greater the costs of trade disruption when war breaks
out. More specifically, an increase in the scope of trade between Israel and the
Palestine can decrease political tensions by reducing the growing economic gap
between the two economies. As we showed in Mansury et al. (2005), the Palestine
economy could enjoy greater a benefit from every additional dollar of foreign aid
injected into the economy under the free trade scenario.
We conclude that as far as we know, the literature has been largely silent
on the impact of cross-border trade in the presence of inter-industry (I-O) linkages
when the economies involved are at different stages of development.
Published by The Berkeley Electronic Press, 2008
5
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
Data and Models
Data
In this study, we start with a 14-sector breakdown of the I-O transactions
representing both the Israeli and Palestinian economies. In Mansury et al. (2005),
we have described in detail our inter-regional I-O data set representing the binational economic interdependence between Israel and Palestine. Briefly, the two
primary data sets used in this study are the I-O data sets for the combined West
Bank and Gaza regions (i.e., “Palestine”) for 19984 and for Israel for 1995.5 These
input-output data sets are broken down into fourteen sectors, namely:
1. Agriculture
2. Manufacturing
3. Electricity and Water Supply
(Utilities)
4. Construction
5. Wholesale and Retail Trade
(Trade)
6. Tourism/Accommodations
7. Transport, Storage and
Communication
8. Banking, Insurance and Other Financial
Institutions
9. Real Estate, Renting and Business
Activities.
10. Public Administration
11. Education
12. Health Services and Welfare
13. Community, Social, Personal and
Household Services (Other Services)
14. General Expenses
The last sector, General Expenses, is essentially a balancing account that ensures
that total output is consistent with national accounts data, and has zero value in
the Palestinian data set. Because the last sector does not represent a true economic
activity, we shall focus on the first 13 sectors in the discussion that follows.
Employment data
We obtained employment data from the website of the Palestinian Central Bureau
of Statistics (http://www.pcbs.org). The original data, however, decompose the
labor force into five sectors only. Therefore, several additional estimates were
necessary in order to render the employment data compatible with the 14-sector IO data. First, we employ the 2002 data for Palestine (see Hara, 2004) to
4
We thank Sebastien Dessus of the World Bank for the 1998 SAM data of West Bank/Gaza.
See http://www.cbs.gov.il/publications/input_output/input_en.htm for the Israeli input-output
data set.
5
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
6
Malul et al.: An Economic Development Road Map
disaggregate the labor force into 24 sectors of employment. After condensing the
data to render them compatible with the I-O classification system, we then
compute the proportion of workers employed in each of the 13-sectors. Using this
2002 distribution, we subsequently expand the original 1998 data into 14 sectors
as shown in Table 1.
Table 1. Estimated sectoral breakdown of employment and employment per
1,000 US$ of sectoral output, West Bank and Gaza combined, 1998.
Sector
Workers
(000)
Workers per
US$ 1000 of
Output
0.073
0.015
0.015
0.090
0.072
0.007
0.054
0.019
0.010
0.105
0.016
0.021
0.477
Agriculture
72.253
Manufacturing
81.441
Electricity and Water Supply
4.544
Construction
125.580
Wholesale and Retail Trade
97.474
Tourism/Accommodations
1.352
Transport, Storage and Communication
24.570
Banking, Insurance and Other Financial Institutions 3.503
Real Estate, Renting and Business Activities
5.677
Public Administration
81.691
Education
4.585
Health Services and Welfare
5.034
Community, Social, Personal and Household 38.017
Services
Total
546,000
Source: Authors’ calculations based on the data posted on the website of the
Palestinian Central Bureau of Statistics, http://www.pcbs.org.
Table 1 reveals that the largest Palestinian employer is Construction with
125,580 workers, followed by the Palestinian Authority (i.e., Public
Administration) and Manufacturing. Using workers per output to describe the
type of technology utilized, the right column of Table 1 indicates that the Social,
Personal and Household Services sector is the most labor-intensive activity (0.477
workers per US$1,000 of output), followed by Public Administration and then
Agriculture.
Published by The Berkeley Electronic Press, 2008
7
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
The Inter-Regional Input-Output (IRIO) Model
The inter-regional input-output (IRIO) model is the chosen framework in this
study because its underlying assumption (i.e., free trade with minimal border
controls) is closest to the ultimate goal of the ERM. We compute the IRIO
multiplier matrix, Mir, using the following formula:
(1)
⎡ ⎡ I M 0 ⎤ ⎡ A II
⎢
⎢
M ir = ⎢ ⎢⎢L M L⎥⎥ − ⎢ L
⎢ ⎢ 0 M I ⎥ ⎢ A PI
⎦ ⎣
⎣⎣
M A IP ⎤ ⎤
⎥⎥
M L ⎥⎥
M A PP ⎥⎦ ⎥⎦
−1
,
where AII and APP represent, respectively, the Israeli and Palestinian domestic I-O
transactions, while AIP and API, respectively, the cross-border trade flows from
Israel to Palestine and the corresponding flows from Palestine to Israel. Finally, I
stands for the identity matrix and 0 the matrix containing all zero elements.
If we also have the sectoral breakdown of employment (see, e.g., the
middle column of Table 1), then the vector of labor coefficients, L, can be
computed such that each element l i ∈ L represents the number of workers
required to produce US$ 1,000 worth of output i (see, e.g., the right-most column
of Table 1). The impact of an economic perturbation on employment can then be
computed as the product of the multiplier matrix and the vector of labor
coefficients = M ir ⋅ L .
The Trade Adjustment Factor
Evaluating the endogenous economic impacts of changes in the trading
propensity between two economies is another potentially important extension of
the IRIO methodology presented in section 3.2. Let us define a parameter called
the “trade adjustment factor,” TijAB = 1.0, to represent the current level of trade
between two economies, A and B, where A is exporting goods from its sector i to
B’s importing sector j (e.g., region A exporting its manufactured goods to B’s
agricultural sector). If the political climate between A and B deteriorates and
negatively impacts the overall level of trade between them, one would expect the
trade adjustment factor to fall to 0 ≤ TijAB < 1 . On the other hand, if the political
climate improves and positively affects trade, then one would expect the trade
adjustment factor to rise, 1 < TijAB .
For our specific case of Israel and Palestine, A = I (for Israel), and B = P
(for Palestine). If one multiplies each element in the trading matrices AIP and API
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
8
Malul et al.: An Economic Development Road Map
(see Eq. 1 above) by their respective elements in TIP and TPI, then one would
obtain the new adjusted level of trade between the two economies. Since these
trade levels have been endogenized in the multi-regional and inter-regional
models used in this paper, the new level of economic activities associated with the
adjusted trade levels within both regions would be different from those associated
with the initial or current level of trade.
To see how the trade adjustment factor can be utilized for analyzing
alternative trade scenarios, consider the following example. Suppose the outlook
for peace and increased trade between Israel and Palestine improves significantly,
then this could be reflected in the rise of the trade adjustment factors to Tijip = 3.0
and Tijpi = 1.5 for all i, j. That is, under an optimistic scenario diminishing conflict
would increase Israeli exports to Palestine by 200%, and increase Palestinian
exports to Israel by 50%. The asymmetrical increase in trade (by 200% for Tijip
and by 50% for Tijpi ) can be due to, for example, future increases in foreign aid to
Palestine, which leads to a higher propensity to import from Israel. We stress that
although the trade adjustment factor has been defined in terms of changes in
political interrelationships, a similar approach can be used in more general cases,
such as measuring the economic impacts of disasters affecting trade, the
imposition or elimination of tariffs, etc.
Results
Benchmark simulation: T = 1
Table 2 lists the multiplier impacts of a shock originating in one of the Palestinian
sectors. The table reveals that the Palestinian sectors that yield the greatest
economic impact depend on our criteria with respect to our regions of interests.
For example, if we are concerned with the performance of the combined
economies of Palestine and Israel, then the IRIO multipliers in column (1) of
Table 2 suggest that Banking produces the largest multiplier impact (3.217),
followed by Construction (2.438), and Electricity (2.317). Focusing only on the
Palestinian economy, column (2) of Table 2 shows that again Banking (2.83) and
Construction (1.968) were the top two impact generators, but here Trade (1.747)
ranks third, reflecting the role of both wholesale and retail trade within the
Palestinian borders. However, the entire ranking changes if instead we are
concerned primarily with the spillover effects to Israel (last column of Table 2. In
this case, Electricity (0.974), Manufacturing (0.713), and Tourism (0.709)
transmit the largest inter-regional spillovers. For example, the Electricity sector
yields a total multiplier effect of 2.317, of which 1.343 accrues solely to the
Published by The Berkeley Electronic Press, 2008
9
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
Palestinian economy. The difference, 2.317 – 1.343 = 0.974, constitutes the interregional effect that spills over from Palestine to Israel. Thus, the total impact of
Banking or Construction shock is large because the Palestinian proportion is
significant: 87.99% and 80.71% of the total IRIO multipliers, respectively. By
contrast, the spillover effect from Electricity and Manufacturing is large due to
significant leakages to Israel: 42.05% and 35.14%, respectively.
Table 2. The IRIO multiplier impacts of a shock originating in Palestinian sectors
(in descending order). Column (1) ranks the total sectoral impacts on the
combined economies of Palestine and Israel, (2) the impacts on the Palestinian
economy only, (3) the spillover effects to Israel. The numbers represent the
magnitude of the impact in each sector. Note that for each sector of origin, (1) =
(2) + (3).
Palestine and Israel (1)
Banking
3.217
Construction 2.438
Utilities
2.317
Tourism
2.183
Agriculture
2.065
Manufacturing 2.029
Transport
2.005
Trade
1.962
Public Admin 1.917
Health
1.879
Other Svc
1.877
Real Estate
1.243
Education
1.236
Mean
2.028
Std. Dev.
0.500
C.V.
0.247
Palestine Only (2)
Spillover to Israel (3)
Banking
2.830 Utilities
0.974
Construction 1.968 Manufacturing 0.713
Trade
1.747 Tourism
0.709
Public Admin 1.616 Transport
0.661
Other Svc
1.609 Agriculture
0.575
Agriculture
1.490 Construction 0.470
Tourism
1.474 Health
0.427
Health
1.452 Banking
0.386
Transport
1.343 Public Admin 0.302
Utilities
1.343 Other Svc
0.268
Manufacturing 1.316 Trade
0.215
Education
1.145 Real Estate
0.184
Real Estate
1.058 Education
0.092
Mean
0.568
Mean
0.460
Std. Dev.
0.449
Std. Dev.
0.256
C.V.
0.286
C.V.
0.557
In general, Table 2 shows that if the shock originates in one of the
Palestinian sectors, then the inter-regional spillover effect to Israel is relatively
significant. In contrast to that, Table 3 shows that if instead Israeli sectors are the
sources of the shock, then the spillover to Palestine is, by comparison, relatively
smaller. These results suggest a higher dependency of the Palestinian economy on
Israel rather than the latter on the former, such that increased investments in
Palestine bring about larger spillovers in the form of import leakages. For
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
10
Malul et al.: An Economic Development Road Map
example, the U.S. promise6 of US$ 50 million to fund infrastructure development
in Gaza would, if we assume it would be primarily in the Construction sector,
have a multiplier of almost two (1.97), implying an economic impact of almost
$100 million for Palestine alone with an additional spillover to Israel of almost
$23.5 million. On the other hand, because the Israeli economy does not rely much
on the Palestinian economy, rising final demand for Israeli products only has a
relatively marginal impact on Palestinian activities.
Table 3. The IRIO multiplier impacts of a shock originating in Israeli sectors.
Column (1) ranks the total impact on the combined economies of Palestine and
Israel, (2) the impact on the Israeli economy only, (3) the spillover to Palestine.
The numbers represent the impact magnitude.
Palestine and Israel (1)
Agriculture
2.119
Construction
1.876
Manufacturing 1.853
Health
1.754
Transport
1.745
Trade
1.697
Utilities
1.655
Public Admin
1.609
Other Svc
1.599
Tourism
1.559
Banking
1.447
Real Estate
1.344
Education
1.343
Mean
1.661
Std. Dev.
0.219
C.V.
0.132
Israel Only (2)
Agriculture
2.053
Construction 1.861
Manufacturing 1.827
Health
1.750
Transport
1.742
Trade
1.693
Utilities
1.650
Public Admin 1.604
Other Svc
1.597
Tourism
1.552
Banking
1.446
Real Estate
1.342
Education
1.341
Mean
1.651
Std. Dev.
0.205
C.V.
0.124
Spillover to Palestine (3)
Agriculture
0.066
Manufacturing 0.026
Construction 0.015
Tourism
0.006
Utilities
0.005
Public Admin 0.005
Trade
0.004
Transport
0.003
Health
0.003
Other Svc
0.002
Real Estate
0.002
Education
0.001
Banking
0.001
Mean
0.011
Std. Dev.
0.018
C.V.
1.636
A comparison of column (1) of Table 2 and column (1) of Table 3 reveals that in
general the magnitude of the IRIO multipliers are larger for shocks originating in
Palestine (mean = 2.028) than that for shocks originating in Israel (mean = 1.661).
For the latter, however, the impact that is retained in Israel (mean = 1.651)
outweighs the Palestinian proportion that is retained in West Bank and Gaza
(mean = 1.568). Once again, these summary statistics point to Palestine’s greater
dependency on Israel than the reverse. We note also that there is greater
6
By President Bush to President Abbas on May 26, 2005, see the website of the U.S. State
Department, http://www.state.gov/p/nea/rls/rm/46824.htm .
Published by The Berkeley Electronic Press, 2008
11
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
variability among Palestinian multipliers [standard deviation = 0.500 and
coefficient of variation (C.V.) = 0.247 for the total IRIO impact] than for Israeli
multipliers (standard deviation = 0.219 and C.V. = 0.132)
Employment impact, T = 1
The right column of Table 4 shows the impact of shocks originating in 13
Palestinian sectors on sectoral employment. As expected, the Social, Personal,
and Household Services sector yields the highest employment impact due to its
highly labor-intensive structure (see the middle column of Table 1). An
interesting result is that the Banking sector, which yields the highest multiplier in
dollar terms, does not greatly increase employment. In contrast, the Social,
Personal, and Household Services sector that generates the highest employment
multiplier, yields a relatively low multiplier in dollar terms. These results thus
suggest a potential conflict between employment and output goals.
Table 4. Employment impact of an economic perturbation originating in
Palestinian sectors (in number of jobs created per US$ 1,000,000 of output).
Sector
Employment
Impact
Agriculture
Manufacturing
Electricity and Water Supply
Construction
Wholesale and Retail Trade
Tourism/Accommodations
Transport, Storage and Communication
Banking, Insurance and Other Financial Institutions
Real Estate, Renting and Business Activities
Public Administration
Education
Health Services and Welfare
Community, Social, Personal and Household Services
Mean
Std. Dev.
C.V.
90.532
25.443
20.205
114.760
110.890
16.907
62.914
54.918
12.571
131.811
21.091
35.386
511.782
93.016
132.493
0.702
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
12
Malul et al.: An Economic Development Road Map
Varying the Trade Adjustment Coefficient (T)
Changing the Trade Adjustment Coefficient, T, corresponds to switching a trade
regime. T values smaller than unity represents more restricted trade between
Palestine and Israel relative to the current regime; conversely T values larger than
unity represent lesser border controls and therefore increased trade flows between
the two economies.
Optimistic, counterfactual scenario: T = 10
This scenario corresponds to considerable relaxation of border controls (T = 10),
hence is expected to significantly promote economic cooperation between
Palestine and Israel. Table 5 presents the multiplier impact caused by a ten-fold
increase in bi-national trade (T = 10) and simultaneously an increase in final
demand in Palestine. The results [column (1) in Table 5] suggest that greater
cooperation between the two economies lead to total multipliers that are generally
higher (mean = 2.251), as well as lower volatility in output (standard deviation =
0.486) relative to the base run [column (1) in Table 2].
Table 5. The IRIO multiplier impact of a shock from Palestine, T = 10.
Palestine and Israel (1)
Agriculture
3.292
Construction 3.041
Manufacturing 2.955
Banking
2.864
Utilities
2.663
Transport
2.624
Tourism
2.579
Health Svc
2.491
Public Admin 2.324
Trade
2.300
Other Svc
2.280
Real Estate
1.849
Education
1.508
Mean
2.521
Std. Dev.
0.486
C.V.
0.193
Palestine Only (2)
Construction 1.917
Banking
1.751
Trade
1.703
Agriculture
1.503
Public Admin 1.433
Other Svc
1.368
Manufacturing 1.247
Health Svc
1.210
Tourism
1.142
Education
1.111
Transport
1.105
Utilities
1.091
Real Estate
1.034
Mean
1.355
Std. Dev.
0.288
C.V.
0.213
Spillover to Israel (3)
Agriculture
1.789
Manufacturing 1.708
Utilities
1.572
Transport
1.519
Tourism
1.438
Health Svc
1.281
Construction 1.124
Banking
1.112
Other Svc
0.912
Public Admin 0.892
Real Estate
0.815
Trade
0.597
Education
0.396
Mean
1.166
Std. Dev.
0.432
C.V.
0.369
Note that when border controls are sufficiently reduced, as in this case
with T = 10, the portion that stays within Palestine also increases for all sectors.
Published by The Berkeley Electronic Press, 2008
13
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
This we can see by comparing column (2) of Table 5 with column (2) of Table 2.
The behavior of the Palestine-only effect therefore can be represented by a Ucurve (see Figure 1). Specifically, starting from a no-trade position (T = 0), the
portion that stays within Palestine initially decreases as Palestine becomes more
integrated with Israel (i.e., T rises). However, if it is possible to increase T to a
very high level, then the Palestine portion will start to rise.
Figure 1. The U-curve showing the relationship between the Palestine-only
portion of the multiplier impact and the trade adjustment coefficient T.
Origin of Shock: Palestinian Agriculture
4.5
IRIO M ultiplier Im pact
4
3.5
3
2.5
2
1.5
1
0
0
0
0.05 0.1 0.5
1
1.5
3
5
10
13
14
15
20
Trade Adjustment Coefficient (T)
Total (Combined Palestine & Israel)
Palestine only
At these much higher levels of trade between the two economies,
Agriculture becomes the largest generator of inter-regional impact (3.292),
replacing Banking which ranks first in the base run. Interestingly, and consistent
with the case of T = 0.1 (see below), Banking again exhibits an inverse
relationship with the trade level. Specifically, Banking is the only sector that
experiences a decrease in the magnitude of the IRIO multiplier, from 3.217 in the
base run (Table 2) to 2.864. It is thus likely, we hypothesize here, that Palestinian
Banking ends up being the losing sector as Palestine and Israel increase the extent
of their economic cooperation.
Pessimistic, counterfactual scenario: T = 0.1
This scenario simulates the effects of tightening regulatory trade measures, and
thus represents a setback to the promulgation of economic cooperation between
Palestine and Israel. Table 6 presents the multiplier impact from one such
scenario (T = 0.1), when the shock originates in Palestine. The results suggest that
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
14
Malul et al.: An Economic Development Road Map
more restrictive trade typically leads to decreasing total multiplier impacts for the
combined economies of Israel and Palestine (mean = 1.791), as well as higher
volatility in output (standard deviation = 0.516 and CV = 0.288). We note also
that Banking and Construction remain the sectors that generate the greatest total
impact, with IRIO multipliers of 3.230 and 2.147, respectively [column (1) of
Table 6].
It therefore can be concluded that the total IRIO multipliers decline in
magnitude because of the significant fall in the spillovers to Israel. Indeed, this is
what we found by comparing column (3) of Table 6 with column (3) of Table 2.
Tightening trade between Palestine and Israel therefore increases the portion that
stays within Palestine, yet reduces the total multiplier impact of an economic
stimulus by decreasing the spillovers to Israel.
Table 6. The IRIO multiplier impact of a shock from Palestine, T = 0.1.
Palestine and Israel (1)
Banking
3.230
Construction 2.147
Utilities
1.918
Tourism
1.868
Trade
1.836
Public Admin 1.746
Other Svc
1.729
Agriculture 1.712
Health
1.625
Transport
1.617
Manufacturing 1.584
Education
1.176
Real Estate
1.092
Mean
1.791
Std. Dev.
0.516
C.V.
0.288
Palestine Only (2)
Banking
3.174
Construction 2.074
Trade
1.803
Tourism
1.752
Utilities
1.714
Public Admin 1.701
Other Svc
1.691
Agriculture
1.629
Health
1.564
Transport
1.516
Manufacturing 1.474
Education
1.163
Real Estate
1.070
Mean
1.717
Std. Dev.
0.510
C.V.
0.297
Spillover to Israel (3)
Banking
0.055
Construction 0.073
Trade
0.033
Tourism
0.117
Utilities
0.204
Public Admin 0.045
Other Svc
0.039
Agriculture
0.082
Health
0.061
Transport
0.101
Manufacturing 0.110
Education
0.013
Real Estate
0.022
Mean
0.073
Std. Dev.
0.051
C.V.
0.699
IRIO multipliers and the trade regime
A positive relationship between the total IRIO multipliers and the trade
adjustment coefficient, T, is typical. Figure 2 and Figure 3 show such a
relationship for Palestinian Agriculture and Palestinian Manufacturing,
respectively. For these two sectors, the relationship is positive but non-linear with
a concave-shaped curve.
Published by The Berkeley Electronic Press, 2008
15
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
Figure 2. The multipliers of the Palestinian
Agriculture sector, various T values.
Total Multiplier Impact
S hock: Agriculture-Palestine
3.500
3.300
3.100
2.900
2.700
2.500
2.300
2.100
1.900
1.700
0
2
4
6
8
10
12
T (Trade Coefficient)
Figure 3. The multipliers of the Palestinian
Manufacturing sector, various T values.
S hock: Manufacturing-Palestine
Total Multiplier Impact
3.100
2.900
2.700
2.500
2.300
2.100
1.900
1.700
0
2
4
6
8
10
12
T (Trade Coefficient)
Very atypical is the relationship between the multipliers and trade that
Banking exhibits (Figure 4). For this sector, the association is negative, and
further there might be an inflection point somewhere as initially the curve exhibits
a convex shape but at some point becomes concave.
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
16
Malul et al.: An Economic Development Road Map
Figure 4. The multipliers of the Palestinian Banking sector, various T values.
Total Multiplier Impact
S hock: Banking-Palestine
3.300
3.250
3.200
3.150
3.100
3.050
3.000
2.950
2.900
2.850
2.800
0
2
4
6
8
10
12
T (Trade Coefficient)
To summarize, these results imply that the interregional interactions
among activities generate higher total multipliers than the intra-regional (Palestine
only) interactions, which means that as the trade scope increases, the extent of the
interregional interactions will increase as well, leading to higher total multiplier
impacts.
An interesting result is that the impact on Palestine is the opposite in most
sectors. That is to say that the Palestinian multipliers decrease as the trade scope
increases, which means that Palestinian sectors lose from higher integration with
Israel. However, it appears that an increase in trade scope can lead to a Pareto
improvement for both economies. As one can see, an increase in trade scope
leads to a gain for Israel that is higher in absolute values than the loss to Palestine.
So if Israel is willing to offer a Kaldor-Hicks compensation to Palestine, then a
win-win outcome can be realized. For example, if the Manufacturing sector is to
be promoted (under a high level of trade with T = 10), then a prior agreement
could be established such that Israel would compensate Palestine an amount of at
least US$ 0.069 (which is the loss that Palestine would incur due to trade
liberalization from T = 1 to T = 10). Such a compensation scheme would thus
result in a Pareto superior outcome in which both parties become better off.
In contrast, the Palestinian Agriculture sector behaves differently, as it
generates a U-shape multiplier impact with rising trade flows T (see Figure 1),
which means that Palestine could gain or lose depending on the initial level of
trade. In this case a significantly higher level of trade, as we show with T = 10,
could achieve a Pareto improvement even without any ex ante compensation for
Published by The Berkeley Electronic Press, 2008
17
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
Palestine. On the other hand, if the level of trade was not very high to begin with,
then a reduction in trade scope could lead to a Pareto improvement for Palestine.
This last result implies that if it is started from a moderate trade relationship, as in
the current regime, then interactions among local (Palestine only) sectors due to a
shock in Palestinian Agriculture could generate a higher total multiplier
than interregional interactions.
Concluding Remarks
Comparing our results with those predicted by existing theoretical frameworks, to
the best of our knowledge no theoretical model has shown the adverse impact of
trade on the smaller region. Thus, for example, Markusen (1981) determines that
if the commodity markets are only imperfectly competitive, then a more extensive
bilateral trade may actually cause the larger county to suffer a loss in income. In
contrast, perfect competition is a critical assumption in our model (otherwise the
assumption of linear production functions cannot be justified), which could
explain the contraction of the smaller Palestinian economy.
Although macroeconomic approaches are both important and necessary, in
and of themselves they are not sufficient to bring peace to this volatile region of
the Middle East. There is a precedent and a need for also taking a more microeconomic, project-oriented approach in which groups of Israelis and Palestinians,
either separately or together, could cooperate on, for example, regional economic
development projects in which both sides would benefit, at least indirectly if not
directly. The success of even relatively small cooperative projects at this level, in
which the benefits are widely distributed, would likely encourage the
implementation of even larger projects, thereby creating a constituency that would
have a growing interest in further regional economic development rather than in
its violent destruction. We believe that the approach outlined in our two papers
provides a framework or road map for the economic evaluation of such projects
that would help to maximize their economic benefits to the Palestinian and /or
Israeli economies.
Isard (2004) argues that history provides some encouragement to believe
that this microeconomic approach can be successful, either as a part of a more
comprehensive (i.e., macro-) framework as proposed above or as a stand-alone
effort that can grow into a much larger cooperative process. An example of
planting such seeds for cooperation which gradually spread throughout the entire
conflict arena is shown in the formation of the coal and steel community in the
1950s, which cut through centuries-old conflicts between France and Germany
and their respective allies. This small initial step soon led to other small
cooperative steps, for example, the establishment early on of Eurotom. These and
subsequent other small, yet incrementally larger, steps eventually led to the
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
18
Malul et al.: An Economic Development Road Map
adoption of a common currency across much of Europe along with the beginnings
of banking and political unions, and later with the beginning of the development
of a constitution covering the union of 25 states.
A more recent set of effective small cooperative efforts is slowly taking
place between North and South Korea. First proposed at the 1997 Peace Science
Society International Conference in Sidney, Australia, a small cooperative
tourism project in the Demilitarized Zone was put forth by Cornell researchers as
a modest way to begin to reduce the likelihood of conflict between these two past
and potential enemies (Isard, 2004). Efforts along these lines began in 1998 when
a contract to establish such a cooperative project was signed by these two
adversaries. This has lead to other subsequent small cooperative steps that have
significantly reduced tensions between these two nations (the current nuclear
stand-off between the U.S. and North Korea notwithstanding).
Even small-scale projects, however, generate economy-wide repercussions
that can only be fully accounted for using a general equilibrium framework. If
aggregate benefits were an important criterion for the evaluation of small-scale
projects, as Bar-El (2005) recently argued, then we propose here an IRIO
framework precisely to enumerate such benefits. To briefly summarize, our
results suggest that if we focus on the combined economies of Israel and
Palestine, then promoting the Palestinian Banking and Construction sectors is
expected to generate higher aggregate incomes than promoting any other
Palestinian activities. An interesting result is that the Banking sector, which yields
the highest multiplier in dollars terms, does not greatly increase employment
However, other services that yield a high employment multiplier yield a relatively
low multiplier in dollar terms. So if the objective of the international community
is to increase employment, then the injection should be concentrated on the
Community, Social, Personal and Household Services sector.
In addition, we found that when border controls are sufficiently reduced
the portion that stays within Palestine also increases for all sectors. These results
imply that interregional interactions among activities generate higher total
multipliers than the intra-regional (Palestine only) interactions, which means that
as the trade scope increases, the extent of the interregional interactions increase as
well, leading to higher total multiplier impacts.
Future extensions of this study should update the 1998 IRIO transaction
flows using more recent data to better reflect the contemporary structure of both
the Palestinian and Israeli economies as far as we know for 12/2007 there is no
available data to update our model however we believe that new data would be
published in the next years. Further, to evaluate the economy-wide impact of
small-scale projects more accurately, it is necessary to disaggregate production
into sufficiently smaller sectors. To do so, we can utilize the 45-sector
breakdown, as in the original 1998 data for Palestine. Finally, the economic road
Published by The Berkeley Electronic Press, 2008
19
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
map for peace would be more complete if the expected losers and winners under
alternative dispute resolutions can be identified. Extending the IRIO framework
into a social accounting matrix (SAM) would accomplish that goal by explicitly
taking into account the distribution of income among various factors of
production (e.g., labor, capital, etc.) as well as among heterogeneous household
groups (e.g., rural-agricultural, urban-professional, etc.). If the losing groups can
be identified, then a compensation scheme can be implemented to mitigate the
costs, and hence maximize the likelihood of a peaceful outcome.
Appendix
Appendix Table 1. Multiplier effects for all pairs of origin-destination, for
shocks originating in the Palestinian economy (based on 1998 data).
Destination: Israeli sectors
Destination: Palestinian sectors
Origin of shocks: Palestinian sectors (1998)
1
2
3
4
5
6
7
8
9
10
11
12
13
1
1.140
0.036
0.002
0.024
0.175
0.009
0.010
0.004
0.003
0.016
0.002
0.010
0.010
2
0.242
1.192
0.056
0.768
0.139
0.269
0.203
0.097
0.014
0.276
0.065
0.285
0.166
3
0.027
0.009
1.277
0.015
0.038
0.024
0.004
0.029
0.003
0.020
0.012
0.018
0.030
4
0.002
0.003
0.003
1.090
0.008
0.006
0.001
0.007
0.001
0.050
0.033
0.053
0.023
5
0.026
0.054
0.003
0.038
1.243
0.014
0.034
0.009
0.016
0.058
0.004
0.018
0.019
6
0.000
0.001
0.000
0.001
0.008
1.004
0.001
0.038
0.001
0.040
0.003
0.004
0.015
7
0.003
0.007
0.001
0.008
0.043
0.011
1.020
0.072
0.004
0.056
0.008
0.015
0.041
8
0.001
0.004
0.000
0.011
0.016
0.105
0.037
2.410
0.004
0.016
0.002
0.005
0.015
9
0.020
0.008
0.001
0.011
0.069
0.030
0.032
0.158
1.010
0.059
0.014
0.036
0.079
10
0.000
0.000
0.000
0.000
0.001
0.000
0.000
0.000
0.000
1.004
0.000
0.001
0.199
11
0.000
0.000
0.000
0.000
0.000
0.001
0.001
0.006
0.001
0.005
1.001
0.001
0.003
12
0.028
0.001
0.000
0.001
0.004
0.000
0.000
0.000
0.000
0.000
0.000
1.002
0.001
13
0.000
0.000
0.000
0.000
0.003
0.000
0.000
0.001
0.000
0.017
0.000
0.004
1.007
1
0.228
0.028
0.008
0.018
0.037
0.013
0.008
0.003
0.001
0.009
0.002
0.008
0.006
2
0.214
0.560
0.172
0.362
0.088
0.172
0.145
0.061
0.018
0.146
0.034
0.158
0.093
3
0.038
0.015
0.618
0.014
0.023
0.028
0.007
0.016
0.002
0.013
0.007
0.013
0.017
4
0.003
0.005
0.007
0.003
0.002
0.008
0.004
0.005
0.005
0.004
0.001
0.003
0.003
5
0.013
0.016
0.015
0.010
0.007
0.013
0.015
0.004
0.002
0.006
0.001
0.008
0.005
6
0.001
0.001
0.002
0.001
0.003
0.332
0.002
0.013
0.001
0.014
0.001
0.002
0.006
7
0.018
0.022
0.032
0.016
0.022
0.025
0.387
0.038
0.005
0.029
0.005
0.015
0.023
8
0.021
0.020
0.037
0.014
0.009
0.030
0.033
0.184
0.005
0.010
0.003
0.011
0.010
9
0.025
0.036
0.060
0.025
0.020
0.068
0.042
0.049
0.139
0.024
0.006
0.023
0.027
10
0.001
0.001
0.006
0.000
0.000
0.001
0.001
0.001
0.001
0.038
0.000
0.001
0.008
11
0.000
0.000
0.001
0.000
0.000
0.000
0.001
0.000
0.000
0.001
0.027
0.000
0.000
12
0.007
0.001
0.000
0.000
0.001
0.000
0.000
0.001
0.000
0.001
0.000
0.176
0.001
13
0.001
0.002
0.003
0.001
0.001
0.009
0.003
0.001
0.002
0.003
0.001
0.002
0.066
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
20
Malul et al.: An Economic Development Road Map
References
Aix Group. 2004. “Economic Road Map: An Israeli-Palestinian Perspective on
Permanent Status,” < http://www.aixgroup.org >
Bar-El, Raphael. 2005. “Assessing Regional Cooperation Projects in the Middle
East,” preliminary summary prepared for the Jan Tinbergen Peace Science
Conference, Amsterdam, June 27-29, 2005.
Bar-El, Raphael and Miki Malul, 2008, “The Role of External Partners,” The
Economics of Peace and Security Journal , 3(1):17-24.
Bouillon, Markus E. (2004). The Failure of Big Business: On the Socio-economic
Reality of the Middle East Peace Process. Mediterranean Politics, 9(1), 1-28.
Dollar, David, and Aart Kraay. 2002. “Spreading the Wealth,” Foreign Affairs,
81(1), 120-133.
Deardorff, Alan V. 1979. “Weak Links in the Chain of Comparative Advantage.”
Journal of International Economics, 9(2), 197-209.
Edwards, Sebastian. 1993. “Openness, Trade Liberalization, and Growth in
Developing Countries.” Journal of Economic Literature, 31(3), 1358-1393.
Forman, Shepard, Stewart Patrick, and Dirk Salomons. (2000). Recovering From
Conflict: Strategy for an International Response. Center on International
Cooperation, New York University.
Frankel, Jeffrey A. and David Romer. 1999. “Does Trade Cause Growth?”
American Economic Review, 89(3), 379-399.
Ghose, Ajit K. 2004. “Global Inequality and International Trade.” Cambridge
Journal of Economics, 28, 229-252.
Grossman, Gene M. (Editor). 1992. Imperfect Competition and International
Trade. Cambridge, MA, MIT Press.
Hara, Tadayuki. 2004. “Estimating the Economic Impacts of the Tourism
Industrial Complex on the West Bank and Gaza: an Analysis of the Crossroads of
Tourism and Terrorism along the Road Map for Peace.” Unpublished Ph.D.
dissertation, School of Hotel Administration, Cornell University.
Isard, Walter. 2004. “A Jordan/West Bank Development Proposal, Peace
Economics,” Peace Science and Public Policy, 10, 36-55.
Krugman, Paul and Maurice Obstfeld. 2003. International Economics: Theory
and Policy. Boston, Addison-Wesley, 6th edition.
Levine, Ross and David Renelt. 1992. “A Sensitivity Analysis of Cross-Country
Growth Regressions.” American Economic Review, 82(4), 942-963.
Lindert, Peter H., and Jeffrey G. Williamson. 2001. “Does Globalization Make
the World More Unequal?” NBER Working Paper No. 8228.
Lucas, Robert E. 1988. “On the Mechanics of Economic Development,” Journal
of Monetary Economics, 22(1), 3-42.
Published by The Berkeley Electronic Press, 2008
21
Peace Economics, Peace Science and Public Policy, Vol. 14 [2008], Iss. 1, Art. 1
Mansury, Yuri, Tadayuki Hara, Miki Malul, and Sidney Saltzman. 2005.
“Measuring Bi-National Economic Interdependence: An Exploration of the IsraelPalestine Case.” Mimeo, Cornell University.
Markusen, James. 1981. “Trade and Gains from Trade with Imperfect
Competition.” Journal of International Economics, 11, 531-551.
Ricardo, David. 1817. The Principles of Political Economy and Taxation.
London, J.M. Dent & Sons.
Rivera-Batiz, Luis A. and Paul M. Romer. 1991. “Economic Integration and
Endogenous Growth.” Quarterly Journal of Economics, 106, 531-556.
Romer, Paul M. 1986. “Increasing Returns and Long-Run Growth,” Journal of
Political Economy, 94(5), 1002-1037.
Saleh, Basel (2004). Economic Analysis of the Palestinian Second Intifada. Ph.D.
Dissertation, Kansas State University.
Weede, Erich. 2004. “The Diffusion of Prosperity and Peace by Globalization,”
Independent Review, 9(2),165-186.
http://www.bepress.com/peps/vol14/iss1/1
DOI: 10.2202/1554-8597.1122
22