- By Neha PaliwalNeha Paliwal is the Editorial Assistant for Democracy Lab.
When economists and business leaders talk about barriers to trade, they are normally referring to red tape like tariffs, regulations, and import quotas that makes doing international business frustrating and more expensive. But sometimes barriers to trade are literal — and have a profound effect on the economies in question.
As the World Bank noted late last week, amid renewed buzz about Israeli-Palestinian peace talks, it recently set out to put some hard numbers to the effect of the Israeli-Palestinian conflict on labor and trade in the West Bank. After the first Intifada broke out in 1987, the Israelis constructed a series of checkpoints in the territory in an effort to promote security. They then scaled them down in the 1990s, only to ramp up their use once again following the second intifada in 2000 and the construction of the West Bank separation barrier in 2002, with the number of checkpoints peaking in 2008.
The researchers found that checkpoints, in restricting the mobility of goods, services, and labor and making production costlier, had a significant negative economic impact on West Bank residents. Between 2000 and 2005, for instance, the data shows that there was a 17-percent drop — from 58 percent to 41 percent — in the share of sales of West Bank firms outside their areas of business.
Workers frequently have stopped looking beyond checkpoints for work, which decreases their chances of finding jobs. By combing through data from 2000 to 2009, researchers noticed that in a best-case scenario, just one checkpoint, a minute away from a town, reduced the employment potential of residents by 0.5 percent and their hourly wages by 5.2 percent. While that may not sound like much, the researchers estimate that approximately 6,900 more people were unemployed in 2007 than would have been without the presence of checkpoints — resulting in a $38 million hit to the economy. If you only look at the impact on hourly wages, the loss amounts to $229 million — or almost 6 percent of the West Bank’s GDP in 2007.
While the study only looks at the short-term implications of checkpoints on the West Bank, it acknowledges that such restrictions on trade undoubtedly affect human welfare as well. On the bright side, last week brought news that IKEA and other multinationals like KFC are making plans to set up shop in the territory.
Will that be enough? It’s difficult to be optimistic. A March Economic Monitoring Report by the World Bank notes that as long as Israeli sanctions continue, there is little hope for sustainable economic growth in the West Bank — especially in the absence of political progress.