What will the Israeli and Palestine economies look like in 2024 ?

by C. Ross Anthony, Daniel Egel, Charles P. Ries, Craig Bond, Andrew Liepman, Jeffrey Martini, Steven Simon, Shira Efron, Bradley D. Stein, Lynsay Ayer, Mary E. Vaiana

Related Topics: Economic Development, Israel, Low-intensity Conflict, Nation Building, Palestinian Territories, Terrorism

DOWNLOAD EBOOK FOR FREE PDF file 2.4 MB

Purchase Paperback Pages: 292, List Price: $37.50, Paperback Price: $30.00

Paperback ISBN/EAN: 9780833090331, Document Number: RR-740-1-DCR, Year: 2015

Series: Research Reports

CALCULATOR

Use the Rand Inernatiomal Calculator I to make your own forecast.

That may depend largely on how the region's longstanding conflict evolves—or fails to do so.

RAND's Costs of the Israeli-Palestinian Conflict study estimates the net costs and benefits of five scenarios, compared with the conflict's current trajectory.

Use this calculator to explore the effects of modifying key assumptions. Assumptions influence either the conflict's direct costs (expenditures) or its opportunity costs (lost opportunities).

The economic impact of each assumption draws on existing evidence, as documented in Appendix B of the full report.

NOTE: The cost effects shown are all relative to a present trends base case in 2024 and are indicated by ∆. This present trends base case assumes that (a) economic and security outcomes for both Israelis and Palestinians continue along current trajectories from 2014 to 2024, and that (b) there are no significant shocks or changes to economic, demographic, and security conditions.

All amounts are in billions (U.S. dollars, 2014)..

RESEARCH QUESTIONS

What are the net costs and benefits to Israelis and Palestinians if the current impasse endures over the next ten years, relative to several alternative trajectories that the conflict could take?

What noneconomic factors surrounding the conflict might influence the parties' assessment of the value of alternative trajectories?

What are the longer-term implications — beyond the next ten years — of the impasse for Israel, the West Bank and Gaza, and the international community?

For much of the past century, the conflict between Israelis and Palestinians has been a defining feature of the Middle East. Despite billions of dollars expended to support, oppose, or seek to resolve it, the conflict has endured for decades, with periodic violent eruptions, of which the Israel-Gaza confrontation in the summer of 2014 is only the most recent.

This study estimates the net costs and benefits over the next ten years of five alternative trajectories — a two-state solution, coordinated unilateral withdrawal, uncoordinated unilateral withdrawal, nonviolent resistance, and violent uprising — compared with the costs and benefits of a continuing impasse that evolves in accordance with present trends. The analysis focuses on economic costs related to the conflict, including the economic costs of security. In addition, intangible costs are briefly examined, and the costs of each scenario to the international community have been calculated.

The study's focus emerged from an extensive scoping exercise designed to identify how RAND's objective, fact-based approach might promote fruitful policy discussion. The overarching goal is to give all parties comprehensive, reliable information about available choices and their expected costs and consequences.

Seven key findings were identified: A two-state solution provides by far the best economic outcomes for both Israelis and Palestinians. Israelis would gain over two times more than the Palestinians in absolute terms — $123 billion versus $50 billion over ten years. But the Palestinians would gain more proportionately, with average per capita income increasing by approximately 36 percent over what it would have been in 2024, versus 5 percent for the average Israeli. A return to violence would have profoundly negative economic consequences for both Palestinians and Israelis; per capita gross domestic product would fall by 46 percent in the West Bank and Gaza and by 10 percent in Israel by 2024. In most scenarios, the value of economic opportunities gained or lost by both parties is much larger than expected changes in direct costs. Unilateral withdrawal by Israel from the West Bank would impose large economic costs on Israelis unless the international community shoulders a substantial portion of the costs of relocating settlers. Intangible factors, such as each party's security and sovereignty aspirations, are critical considerations in understanding and resolving the impasse. Taking advantage of the economic opportunities of a two-state solution would require substantial investments from the public and private sectors of the international community and from both parties.

KEY FINDINGS

Results of Economic Analysis of the Five Scenarios

A two-state solution provides by far the best economic outcomes for both Israelis and Palestinians. Israelis would gain over two times more than the Palestinians in absolute terms — $123 billion versus $50 billion over ten years.
But the Palestinians would gain more proportionately, with average per capita income increasing by approximately 36 percent over what it would have been in 2024, versus 5 percent for the average Israeli.
A return to violence would have profoundly negative economic consequences for both Palestinians and Israelis; per capita gross domestic product would fall by 46 percent in the West Bank and Gaza and by 10 percent in Israel by 2024.
In most scenarios, the value of economic opportunities gained or lost by both parties is much larger than expected changes in direct costs.
Unilateral withdrawal by Israel from the West Bank would impose large economic costs on Israelis unless the international community shoulders a substantial portion of the costs of relocating settlers.
Intangible factors, such as each party's security and sovereignty aspirations, are critical considerations in understanding and resolving the impasse.
Taking advantage of the economic opportunities of a two-state solution would require substantial investments from the public and private sectors of the international community and from both parties.

That may depend largely on how the region's longstanding conflict evolves—or fails to do so.

RAND's Costs of the Israeli-Palestinian Conflict study estimates the net costs and benefits of five scenarios, compared with the conflict's current trajectory.

Use this calculator to explore the effects of modifying key assumptions. Assumptions influence either the conflict's direct costs (expenditures) or its opportunity costs (lost opportunities).

The economic impact of each assumption draws on existing evidence, as documented in Appendix B of the full report.

________________________________________________________________

ISRAELIS

ALTERNATIVE SCENARIOS

Two-State Solution
Coordinated Unilateral Withdrawal
Uncoordinated Unilateral Withdrawal
Nonviolent Resistance by Palestinians
Violent Resistance by Palestinians

DIRECT COSTS
Budgetary or financial expenditures

Security
Percentage change in annual defence budget

Israel could choose to increase or decrease its defense budget. Greater expenditures would have a negative impact on GDP.

Settlement
Number of settlers relocated

Removing settlers from the West Bank decreases Israel's settlement-related expenditures. But there are large costs associated with this relocation.

Number of settlers relocated
Percent of settler costs covered by the international community

Settlement costs covered by the international community include only those related to relocation. As this percentage increases, so does GDP.

Palestinian Services
Percent of costs assumed by Israel

Israel may assume part of the costs of operating the Palestinian Ministries of Social Affairs, Health, and Education. The greater Israel's share, the more its GDP decreases.

OPPORTUNITY COSTS
Missed economic opportunities

Instability and Perceptions of Instability
Percent change in investment growth
Percent change in total factor productivity growth
Percent change in labor force growth

GDP growth includes growth in investment, total factor productivity, and the labor force. As they increase, so does GDP. Instability in the region, real or perceived, can reduce each of these growth rates.

Boycott, Divestment, and Sanctions
Percent change in GDP

Historical evidence from other countries suggests that financial and trade sanctions associated with boycott, divestment, and sanctions could reduce GDP by 1 to 2 percent.

Tourism
Percent change in Tourism

Political conditions could increase or decrease Israeli tourism. Greater tourism would increase Percent change in tourism

Arab World Trade
Percent change in Israeli exports to Arab countries

Political conditions could affect trade with non-Palestinian Arab countries. More Arab world trade would increase Israeli GDP.

Palestinian Trade
Percent change in Israeli exports to the West Bank and Gaza

Political conditions could affect trade with the West Bank and Gaza. More Palestinian trade would increase Israeli GDP.

Palestinian Labor in Israel
Change in number of Palestinians working in Israel

Political conditions could impact the number of Palestinian workers available to Israelis. A greater labor supply would increase Israeli GDP.

PALESTINIANS

DIRECT COSTS
Budgetary or financial expenditures

Destruction of Private Property and Public Infrastructure
Dollar value of damage (U.S. billions)

Israeli security activities in the West Bank and Gaza can damage Palestinian private property and public infrastructure. This would negatively impact GDP.

Territorial Waters
Percent of natural gas available for extraction

Access to Palestinian territorial waters would enable natural gas production for electricity. This would have a positive impact on GDP.

Palestinian Labor in Israel
Change in Palestinians working in Israel

Political conditions could affect the number of Palestinians working in Israel. As the number of laborers decreases, so does Palestinian GDP.

Freedom of Movement
Percent change in internal transit costs

Israeli restrictions on movement within the West Bank increase transportation costs for Palestinians. Increasing transportation costs negatively affects Palestinian GDP.

Access to Social and Physical Services
Medical: Percent change in costs
Water: Percent change in costs

Palestinians rely on Israel for hospital care and water for domestic consumption. This generates millions of dollars in costs. Increasing these costs negatively affects Palestinian GDP.

Banking Regulations
Percent change in restrictions

Israeli regulations on the Palestinian banking system cost Palestinians millions of dollars per year. Increasing restrictions decreases Palestinian GDP.

Prisoners in Israel
Percent change in number of prisoners

The Palestinian Authority provides financial support to the families of Palestinians held in Israeli prisons. A reduction in the number of prisoners would lower these costs, increasing Palestinian GDP.

OPPORTUNITY COSTS
Missed economic opportunities

Control of Territory
Percent of Area C controlled by Palestinians

Control of Area C could provide mining and construction opportunities. This would increase Palestinian GDP.

Access to Water for Agriculture
Percent of new agricultural land for which water is available

Expanding irrigated agriculture in the West Bank will require new sources of water. Irrigating some or all available land with water purchased at market prices would increase GDP.

Barriers to Trade
Exports: Percent change in non-tariff barriers on exports
Imports: Percent change in dual-use restrictions on imports

Trade is constrained by non-tariff barriers on exports and dual-use restrictions on imports. Reducing these barriers to trade would increase GDP.

Licensing
Percent of licensing restrictions removed

Licensing restrictions on information and communication technology cost Palestinians millions of dollars per year. Removing restrictions would increase GDP.

Tourism and Travel
Percent of visa restrictions lifted

Israeli restrictions on entry to the West Bank and Gaza currently reduce Palestinian tourism revenue by 60 percent. As visa restrictions are lifted, Palestinian GDP would increase.

Dissolution of the Palestinian Authority
Percent of the Palestinian Authority functionality eliminated

Dissolution of the Palestinian Authority would reduce GDP. A complete collapse (100%) would reduce GDP by 15 percent.

OTHER FACTORS

Refugees
Number of refugees returning

An estimated 100,000 to 1.2 million Palestinians may seek to return to the West Bank and Gaza if permitted.

Investment
Percent of required investment available to exploit new opportunities

Exploiting new economic opportunities in the West Bank and Gaza requires private and public investment from domestic and international sources. Greater investment will increase Palestinian GDP.

PROJECT

A Two-State Solution to the Israeli-Palestinian Conflict
Provides the Best Economic Outcomes Jun 8, 2015

The Israeli economy stands to gain more than $120 billion over the next decade in a two-state solution, a possible resolution of the long-standing conflict between Israelis and Palestinians. Palestinians would gain $50 billion, with average per-capita income rising by about 36 percent.

ALSO SEE
What is the psychological impact of the ongoing conflict on how Israelis and Palestinians think, feel, and act?

EXPANDED VERSION

Psychological Aspects of the Israeli–Palestinian Conflict
A Systematic Review

Lynsay Ayer, Brinda Venkatesh, Robert Stewart, Daniel Mandel, Bradley Stein, Michael Schoenbaum

First Published October 27, 2015 research-article

THE

INCREDIBLE

STORY OF THE JEWISH PEOPLE

WHAT WILL THE ISRAELI AND PALESTINIAN ECONOMIES LOOK LIKE IN 2024?
Rand International