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Publication(Washington, DC, 2007-03) World BankIt is the purpose of this Investment Climate Assessment (ICA) to look at what hinders the move of the Palestinians to new markets and what can be done to encourage it. The ICA reveals that shrinking market access and the lack of free movement are the main constraints to growth for Palestinian enterprises. Relative to other countries in the region, the Palestinian investment climate is good: petty corruption is low, the bureaucracy is relatively efficient and financial markets are well developed. Despite this, Palestinian enterprises have not invested enough to maintain their international competitiveness. However, the report points out that the growing settlements and movement restrictions imposed by Israeli authorities for security reasons overshadow all other elements of the investment climate. The restrictions close off markets, raise transaction costs and prevent producers from guaranteeing delivery dates. The closures also serve to keep firms small and prevent them from attaining minimum efficient scale. The ICA policy recommendations fall into three broad categories: movement and access, the investment climate, and enterprise capabilities. For the Palestinian private sector to fulfill its potential and create the jobs required by the rapidly expanding population, all three of these areas must be addressed. However, re-establishing free movement and access, while maintaining Israeli security, is the sine qua non for a viable Palestinian economy. Without a concerted political effort to re-open markets and lower transaction costs the Palestinian private sector is bound to fail.
Publication(Washington, DC, 2004-06-23) World BankThis report stresses that the deep economic crisis in the West Bank and Gaza threatens to impoverish and alienate a generation of young Palestinians. Moreover, today's economic crisis has been caused by restrictions on the movement of Palestinian people and goods, or 'closures', which the Government of Israel (GOI) regards as essential to protecting Israeli citizens from attacks by militants. Without a major reform of the closure regime, however, the Palestinian economy will not revive and Israel's security gains may not be sustainable. The report adds that Israel's Disengagement Plan of June 6 will have very little impact on the Palestinian economy and Palestinian livelihoods, since it only proposes a limited easing of closure. An easing of closures alone, though, will not attract investors back to the Palestinian economy. The review opines that with a freeing-up of the constraints on economic activity and committed Palestinian reform, an additional major donor effort would make a difference - it would enable the Palestinian economy to turn the corner. However, the alternative to this is stark. At the wrong end of the spectrum of possible outcomes is a Palestinian economy with unemployment levels of over 35 percent by 2006, and with poverty afflicting upwards of 55 and 70 percent in Gaza. The study points out that as for the settlement assets that Israel will leave behind, those in Gaza have considerable economic value, and in time can make a significant contribution - provided that Gaza's borders are opened for trade. Prospects for economic recovery will be enhanced if the US and the EU give adequate preference to Palestinian products to help boost exports.
Publication(Washington, DC, 2002-07) World BankIn 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.