Exporting Labor or Goods? Long-Term Implications for the Palestinian Economy

28 Pages Posted: 3 May 2002

See all articles by Claus Astrup

Claus Astrup

World Bank - West Bank and Gaza Resident Mission

Sebastien Dessus

World Bank - West Bank and Gaza Resident Mission

Date Written: April 2002

Abstract

The restricted access of the Israeli labor market to Palestinian workers is a major negative shock for the Palestinian economy, and naturally raises the question of whether an alternative strategy to exporting labor is feasible and presents at least similar growth opportunities. In this paper, we develop a dynamic general equilibrium model to assess the impact of restricted access to the Israeli labor market on the Palestinian export performance, and in turn, on GDP growth. The results suggest first that exporting large flows of Palestinian workers in Israel tends to reduce the capacity of the Palestinian industry to export goods. Second, that - even under optimistic assumptions on the export-led growth potential of the Palestinian economy - the induced depreciation of the real exchange rate after the closure will not have sufficient growth effects to avoid large per capita income losses. Third, that the adoption of appropriate trade and fiscal policies in this context could significantly magnify the potential growth impact of a real exchange rate depreciation. Fourth, that external assistance is likely to have then a larger developmental impact, than in the case of a re-opening of the Israeli labor market to Palestinian workers.

Keywords: West Bank and Gaza, trade, labor, dutch disease, general equilibrium

JEL Classification: D58, F11, J3

Suggested Citation

Astrup, Claus and Dessus, Sebastien, Exporting Labor or Goods? Long-Term Implications for the Palestinian Economy (April 2002). Available at SSRN: https://ssrn.com/abstract=307422 or http://dx.doi.org/10.2139/ssrn.307422

Claus Astrup

World Bank - West Bank and Gaza Resident Mission ( email )

P.O. BOX 54842
Jerusalem
Israel

Sebastien Dessus (Contact Author)

World Bank - West Bank and Gaza Resident Mission ( email )

P.O. BOX 54842
Jerusalem
Israel
+972 2 236 65 49 (Phone)
+972 2 236 65 43 (Fax)

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