Palestine Economic Structure

The Palestinian economy is largely dependent on the Israeli economy and is isolated from global trade. Israel is Palestine’s sole trading partner and controls all flows of goods, services, people and money into and out of the territories. Palestinians are therefore reliant on Israel for employment. Israel’s control of the Palestine economy has resulted in substational changes in the economic structure of Palestine in the last 30 years.

The Palestinian economy is largely dependent on the Israeli economy and is isolated from global trade. Israel is Palestine’s sole trading partner and controls all flows of goods, services, people and money into and out of the territories. Palestinians are therefore reliant on Israel for employment. Israel’s control of the Palestine economy has resulted in substational changes in the economic structure of Palestine in the last 30 years.

Since occupation after the 1967 war, and on through the 70s and 80s, the Palestinian economy grew steadily as an adjunct to the Israeli economy. From the mid 80s onwards, the impact of Israeli policies that discriminated economically against the occupied areas impacted their labor, land, and capital markets, and restrained the expansion of private productive sectors.

The affects of frequent security lock-downs, various intifadas and in-fighting between Fatah and Hamas have all further restricted economic growth.

Production in Palestine is driven by the demands of the Israeli market and trade priorities, while both tariff and non-tariff barriers limiting interaction with the Jordanian and other Arab markets. Therefore Palestinians earning in Israel are the main source of household income, and most of this income is in turn re-channeled into consumption of Israeli imports.

Since late 2000, Palestinian territories have been subject to border closures and internal movement restrictions, the most severe and sustained set of restrictions imposed by Israel since 1967. The restrictions impacted job losses and reduction of income and trade and income-earning opportunities estimated at US$ 9 million per day. The direct economic losses were estimated at 51% of GDP produced in the period October-November 2000 (UNSCO, January 2001 and PCBS, December 2000).

Real GDP growth in the West Bank declined in 2000 – 2002 and increased modestly in 2003-2004 attributed to “diminished levels of violence, fewer curfews, and more predictable (albeit still intense) closures, as well as adaptation by Palestinian business to the contours of a constrained West Bank economy” according to the World Bank who predicted a real growth rate of -0.2 percent in 2006 and -0.6 percent in 2007.

After the 2006 elections won by Hammas the Quartet cut all funds to the Palestine Authority leading to a cash deficit of $60 million – $70 million. The stock market fell by 20 percent as a result of the Palestine Authority exhausting its borrowing capacity with local banks.

More recently from 2007 the economy has improved with growth reaching 4-5 percent and unemployment dropping 3 percent. Wages also rose about 20 percent in 2008, and trade by 35 percent. Tourism also doubled in 2001 and rose to 1.5 million in 2009. The IMF also forecasted 7 percent growth annually in 2009 and 2010, the most recently available figures.