Dutch Disease, Palestinian Economy, One Gap Economy, Foreign Aid


The Palestinian economy is primarily affected by internal and external exogenous political constraints, structural limitations and foreign aid, rather than by endogenous economic free market factors. Underemployment of labor and limited viable opportunities for capital are largely due to limitations on exports and the free flow of goods, services and labor that are imposed by Israel and other neighboring countries, as well as on the shortage of arable land and water. Through theoretical considerations and empirical investigation, this paper claims that the constraints on the Palestinian economy as well as foreign aid result in the symptoms associated with an economy infected by Dutch Disease

Full Text : PDF

  • Abadie, A and J. Gardeazabal (2003), "The Economic Costs of Conflict: a Case-control Study for Basque County", American Economic Review, 93, 113-132.
  • Abadie, A, and J. Gardeazabal, J. (2005), "Terrorism and the World Economy", working paper, Harvard University Kennedy School of Government,
  • Alesina, A., S. Özler, N. Roubini and P. Swagel (1996), “Political Instability and Growth", Journal of Economic Growth, 1,189-211.
  • Arnon, A., I. Luski A. Spivak and J. Weinblatt (1997): The Palestinian Economy in the West Bank and Gaza Strip: from Imposed Integration to Voluntary Separation, Leiden, the Netherlands: E.J. Brill.
  • Arrow, K. (1950), “A Difficulty in the Concept of Social Welfare”, Journal of Political Economy, 58, 328-346.
  • Astrup, C. and S. Dessus (2002), "Exporting Labor or Goods? Long-term Implications for the Palestinian Economy". MENA Working, World Bank. Washington D.C.
  • Bacha, E. (1990), “A Three-gap Model of Foreign Transfers and the GDP Growth Rate in Developing Countries”, Journal of Developing Economics, 32, 279-296.
  • Barro, R., (1999), Inequality, Growth and Investment, NBER Working Paper, No.7038, Cambridge, Mass.
  • Basu, K. (1997), “Analytical Development Economics: the Less Developed Economy Revisited”, Cambridge, Mass.: MIT Press.
  • Barrow, R. and X. Sala-i-Martin (1995), Economic Growth, New York: McGraw-Hill.
  • Bertrand-Albala, J. (2008), "Infrastructure Shortage: a Gap Approach", working paper, University of London: Queens Mary and Westfield College.
  • Birdsall, N., D. Ross and R. Sabot (1995), "Inequality and Growth Reconsidered: Lessons from East Asia", World Bank Economic Review 9, 477-508.
  • Blomberg, S., G. Hess and A. Orphanides (2004), "The Macroeconomic Consequences of Terrorism", Journal of Monetary Economics 51, 1007-1032.
  • Boone, P. (1996), "Politics and the Effectiveness of Foreign Aid" European Economic Review 40, 289-329.
  • Burnside, C. and D. Dollar (2004), "Aid, Policies, and Growth", American Economic Review, 90, 847-868.
  • Chenery, H. and A. Strout (1966), "Foreign Assistance and Economic Development", American Economic Review, 56, 279-735.
  • Collier, P. and D. Dollar (2002), "Aid Allocation and Poverty Reduction" European Economic Review, 46, 1475-1500.
  • Dalgaard, C., H. Hansen and F. Tarp (2004),"On the Empirics of Foreign Aid and Growth", Economic Journal, 114, 191-216.
  • Djankov, S., J. Montalvo, and M. Reynal-Querol (2006) "Does Foreign Aid Help?" Cato Journal, 26, 1-28.
  • Domar, R.(1946),"Capital Expansion, Rate of Growth and Unemployment", Econometrica, 14, 137-147.
  • Easterly, W. (2003), "Can Foreign Aid Buy Growth? “, Journal of Economic Perspectives, 17, 23-48
  • Elbadawi, I. (1999), "External Aid: Help or Hindrance to Export Orientation in Africa?" Journal of African Economics, 114, 191-216.
  • Fayissa, B. and M. El-Kaissy (1999), "Foreign Aid and the Economic Growth of Developing Countries (LDCs): Further Evidence", Studies in Comparative International Development, 34, 37-50.
  • Griffin, K. and J. Enos (1970), "Foreign Assistance: Objective and Consequences", Economic Development and Cultural Change, 18, 313–27.
  • Harms, P. and M. Lutz (2004), The Macroeconomic Effects of Foreign Aid: A Survey, University of St. Gallen Economics Discussion Paper No. 2004-11.
  • Harrod, R.., (1939) "An Essay on Dynamic Theory", Economic Journal, 49, 14-33.
  • Knack, S. (2001), “Aid Dependence and the Quality of Governance: Cross-Country Empirical Tests”, Southern Economic Journal, 68, 310-329.
  • Knowles, S. (2005) "Inequality and Economic Growth: the Empirical Relationship Reconsidered in the Light of Comparable Data", Journal of Development Studies, 41, 135-159.
  • Kuznets, S. (1955) "Economic Growth and Income Inequality", American Economic Review 45, 1-28.
  • Le More, A. (2008), International Assistance to the Palestinians after Oslo: Political Guilt, Wasted Money, London and New York: Routledge.
  • Lucas, R., Jr. (1988), "On the Mechanics of Economic Development", Journal of Monetary Economics, 22, 2-42.
  • Munemo, J., S. Bandyopadhyay and A. Basistha (2007), Foreign Aid and Export Performance: a Panel Data Analysis of Developing Countries, working paper 2007-023A, Federal Reserve Bank of St. Louis.
  • Petri, P. (1997), Trade Strategies for the Southern Mediterranean, working paper No. 127, OECD Development Centre.
  • Rajan, R. and A. Subramanian (2006), Aid, Dutch Disease, and Manufacturing Growth, NBER Working Paper.
  • Romer, P. (1986), "Increasing Returns and Long-run Growth" Journal of Political Economy 94, 1002-1037.
  • Romer, P. (1990), "Endogenous Technological Change", Journal of Political Economy, 98, 71-102.
  • Secretariat of Ad Hoc Liaison Committee (1999), Aid Effectiveness in the West Bank and Gaza, draft report, World Bank and Government of Japan,
  • - 16k
  • Shell, K. (1996) "Toward a Theory of Inventive Activity and Capital Accumulation”, American Economic Review. 61, 62-68.
  • Siddiq, M. (2008), "Does Foreign Aid Work for Africa?" African Business, 341, 62-63.
  • Solow R. (1956), "A Contribution to the Theory of Economic Growth", Quarterly Journal of Economics, 70, 65-94.
  • World Bank (1999), “Aid Coordination and Post Conflict Reconstruction: the West Bank and Gaza Experience”, Précis, 189, Washington: World Bank Operations Evaluation Department.