World Bank2013-08-212013-08-212002-07https://hdl.handle.net/10986/15274In 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.en-USCC BY 3.0 IGOAGRICULTUREANTICOMPETITIVE PRACTICESAUTONOMYBORDER POLICYBUSINESS ENVIRONMENTCAPITAL ACCUMULATIONCOMMON MARKETCOMPETITIVENESSCONSUMER PRICE INDEXCONSUMERSCOST SAVINGSCPICURRENCYCUSTOMSCUSTOMS UNIONDISPUTE SETTLEMENTDISPUTE SETTLEMENT MECHANISMSDOMESTIC DEMANDDOMESTIC ECONOMYDOMESTIC LABORDOMESTIC LABOR MARKETECONOMIC ACTIVITYECONOMIC COOPERATIONECONOMIC CRISISECONOMIC DEVELOPMENTECONOMIC FACTORSECONOMIC GROWTHECONOMIC OBJECTIVESECONOMIC OUTCOMESECONOMIC PERFORMANCEECONOMIC RELATIONSECONOMICSEQUILIBRIUMEQUILIBRIUM MODELEXOGENOUS SHOCKEXPORT MARKETSEXPORT SECTORSEXPORTERSEXPORTSEXTERNAL SHOCKSEXTERNAL TARIFFFACTOR ACCUMULATIONFINAL GOODSFOREIGN BANKSFOREIGN INVESTMENTFOREIGN WORKERSFREE TRADEFREE TRADE AGREEMENTFREE TRADE AREAGDP PER CAPITAGROSS DOMESTIC PRODUCTGROWTH MODELGROWTH POLICYGROWTH POTENTIALHIGH UNEMPLOYMENTHUMAN CAPITALIMPORT PRICESIMPORTED INPUTSIMPORTSINCOMEINCOME CONVERGENCEINTELLECTUAL PROPERTYINTELLECTUAL PROPERTY RIGHTSINTERNATIONAL FINANCELABOR FORCELABOR FORCE GROWTHLABOR MARKETLABOR MARKET INTEGRATIONLABOR MARKET OUTCOMESLABOR MARKET SEGMENTATIONLABOR MARKETSLABOR MOBILITYLABOR POLICIESLABOR SERVICESLABOR SUPPLYLEGAL INSTITUTIONSMARKET INTEGRATIONMARKET OUTCOMESMARKET SEGMENTATIONNATIONAL INCOMEOPEN BORDERSPER CAPITA INCOMEPOLICY ENVIRONMENTPOPULATION GROWTHPREFERENTIAL ACCESSPRIVATE INVESTMENTPRIVATE SECTORPRODUCERSPRODUCTION COSTSPRODUCTIVITYPRODUCTIVITY GROWTHPROPERTY RIGHTSPUBLIC SERVICESREAL GDPREAL INCOMEREDUCING TRANSACTIONS COSTSREGULATORY FRAMEWORKRISK PREMIUMRULES OF ORIGINSERVICE DELIVERYSPECIALIZATIONSTRUCTURAL UNEMPLOYMENTTAX REVENUETAX REVENUESTECHNOLOGY TRANSFERTOTAL FACTOR PRODUCTIVITYTRADE DEFICITTRADE DEFLECTIONTRADE DIVERSIONTRADE LIBERALIZATIONTRADE PARTNERTRADE POLICYTRADE REGIMETRADE REGIMESTRADE RULESTRADE VOLUMESTRANSACTIONS COSTSTRANSPORT COSTSUNEMPLOYMENTUNEMPLOYMENT RATEVALUE ADDEDWAGE GAPWAGESWELFARE LOSSWELFARE LOSSESWORLD TRADEWORLD TRADE ORGANIZATIONWTO ECONOMIC POLICY & PLANNINGECONOMIC POLICY POLITICAL ASPECTSPOLICY MAKINGCONFLICT AREASECONOMIC DEPENDENCYDISPUTE SETTLEMENTDISPUTED TERRITORIESTECHNOLOGY TRANSFERPOLITICAL RISKSSECURITY MEASURESTRANSACTION COSTSLEGAL FRAMEWORKREGULATORY REGULATORY ENVIRONMENTSFINANCIAL INSTITUTIONSPOLICY FRAMEWORKTRADE POLICYLABOR MOBILITYBUSINESS ENVIRONMENTPUBLIC-PRIVATE PARTNERSHIPSECONOMIC GROWTHCUSTOMS UNIONSVALUE ADDED TAXESACCESS TO MARKETSTRADE LIBERALIZATIONLABOR FORCE CHARACTERISTICSECONOMIC INTEGRATIONAUTONOMY & INDEPENDENCE MOVEMENTSPEACE AGREEMENTSPEACE BUILDINGUNCERTAINTYSOCIAL COSTSWorld Bank10.1596/15274