The Demise of Palestinian Productive Sectors: Internal Trade as a Microcosm of the Impact of Occupation

The Israeli occupation has consistently inflicted disastrous economic costs on the Palestinians, costs that economists have examined for decades. One dimension that has been missing in these examinations, however, relates to the distortions in the structure of the Palestinian economy, and the detrimental impacts of these distortions. The term economic structure refers to the contribution of different economic sectors, including agriculture, manufacturing, construction, and trade, to the key macroeconomic variables of output (GDP) and employment. 

Whereas a comprehensive study of these structural distortions is beyond the scope of this blog post, we zoom in on one particular economic sector that has been playing an increasingly dominant role in the Palestinian economy: internal trade. Briefly, internal trade refers to the retail and wholesale buying and selling of goods, including trade with Israel. The increased relevance of the contribution of internal trade to total economic activity in Palestine is part of an ongoing shift away from productive sectors, such as agriculture and manufacturing, towards services, trade, and construction.

This post argues that the dominance of internal trade at the expense of productive sectors is neither a result of a conscious policy effort by the Palestinian Authority (PA) nor an outcome of “laissez faire” market governance. Rather, it is a byproduct of Israeli occupation policies, and a clear consequence of the Palestinian economy’s dependence on the Israeli economy since 1967. The post argues that internal trade is a microcosm of the Palestinian economy as a whole, highlighting the futility of international and donor support for development under occupation. Rather, what is needed involves empowering independent, transparent, accountable, and collective Palestinian policy-making, a quality of leadership and governance that the Palestinian leadership of the last 25 years cannot lead or carry out. 

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