An Economic Development Road Map for Promoting Israeli-Palestinian Cooperation

In this paper we propose an interregional framework as a policy tool for identifying sectors that can stimulate Palestinian economic development while recognizing the reality of the Israeli Palestinian economic interdependencies. Specifically, this paper emphasizes the potential role of bi-national trade channels to promote Israeli-Palestinian cooperation. To that end, we apply an interregional input-output model to 14 sectors of the Palestinian and Israeli economies and their trading relationships. We then investigate the impact of an exogenous foreign injection under alternative trade scenarios. The results suggest that foreign aid injections to the Banking and Construction sectors in Palestine make the highest impact on Palestinian output. On the other hand, if the primary objective is to promote employment, then injections should be concentrated on the Community, Social, Personal and Household Services sectors.