Economic Research Forum (ERF)

Trade policy options to improve Palestine’s food security

Palestine’s limited access to international markets and trade disruptions caused by Israeli closures create food shortages as well as surges in prices across the Palestinian territories. For healthier relations between Israel and Palestine, new arrangements are needed to pave the way to a sovereign Palestinian state with full control over its territory and trade policies. This column reports research simulating different trade policies in a future sovereign Palestinian state and assesses which policy options would improve food security in the West Bank.

In a nutshell

The protocol regulating economic relations between Palestine and Israel no longer addresses challenges facing the Palestinian economy, such as disrupted agricultural trade, food shortages and surges in food prices.

Simulating alternative trade policies in a future sovereign Palestinian state shows that a liberal and non-discriminatory trade regime provides the highest benefits.

Introducing new tariffs on agricultural products imported from Israel would reduce food availability in the West Bank, indicating the benefits of concluding a trade agreement with Israel after leaving the customs union.

Palestine’s trade in goods and services in general – and its trade in agricultural and food products in particular – have been disrupted by the political conflict with Israel. Due to Israeli policies, the Palestinian economy has been isolated and is barely integrated with international markets. Closures erected by the Israeli security forces in an unpredictable manner and curfews declared on short notice have considerably increased transaction costs of trading in the Palestinian territories.

Moreover, the protocol on economic agreement signed between Israel and the Palestinian Liberation Organization in 1994 has formalised a customs and monetary union between the Israeli and Palestinian economies based on Israeli trade and monetary policies. Accordingly, the Palestinian National Authority (PNA) has been left with limited policy space for setting tariffs and choosing a monetary regime that suits Palestinian interests.

While the initial protocol was designed for a transitory period of five years, it still governs Palestinian economic relations with Israel and the rest of the world two decades after it was supposed to give way to a permanent agreement. Realising that the protocol is outdated and that it no longer addresses the challenges facing the Palestinian economy, several voices have called for its revision.

A group of Palestinian and Israeli scholars and officials has suggested that the PNA should be given full control over trade and monetary policies. In such a context, two key questions arise:

  • What is the optimal trade regime for a future Palestinian state?
  • What are the implications for food security?

Our research addresses these questions using a computable general equilibrium model calibrated to a unique database for the West Bank.

Our results show that a liberal and non-discriminatory policy – one that eliminates or reduces tariffs for all trading partners – outperforms the other trade regimes assessed in terms of household welfare, food security and macroeconomic indicators.

Compared with a continued customs union with Israel, a liberal and non-discriminatory trade policy leads to an increase in household consumption of agricultural and food products of 0.9% on average. This is matched with increases in import demand and domestic output sold domestically by 2.1% and 2.5% on average respectively (see Figure 1). Household welfare increases by 8.0% on average and real GDP grows by 8.3%.

In our assessment of alternative trade regimes, one that introduces new tariffs on imports from Israel (assuming that Israel is treated in a similar way to countries with no current preferential trade agreements with Palestine) would hurt the West Bank economy, with GDP decreasing by 8.4%.

In this scenario, household consumption of agricultural and food products decreases by 3.9% on average. Although the domestic supply of domestically produced commodities increases by 3.1% on average, total supply to the domestic market decreases as import demand declines by 13.9%, compared with a continued customs union with Israel (see Figure 2). Ultimately, household welfare decreases by 7.3% on average.

These findings have two important implications. First, they highlight the trade-off between food sovereignty and food availability using comparative advantages in trade. Imposing new tariffs shields the domestic agricultural and food sectors against import competition. Hence, domestic output increases on average and producer welfare improves. However, as total imports decrease, food availability declines and the average household consumes fewer agricultural and food products. Since, a large proportion of Palestinian households are net consumers of food products, the total welfare effects are negative.

Second, these results pinpoint the significance of imports from Israel to the West Bank. Due to its geographical location and the size of its economy, Israel is likely to remain the main trading partner of the West Bank in the future. Therefore, the PNA may want to keep trade with Israel relatively free in future arrangements.

In conclusion, the PNA may favour a liberal and non-discriminatory trade regime to maximise welfare gains and food security in the West Bank. It may also consider keeping trade with Israel relatively free, as Israel is likely to remain the largest trading partner of the West Bank in the future.

Further reading

Agbahey, Johanes, Khalid Siddig, Harald Grethe and Jonas Luckmann (2018)
‘Trade Policy in a Sovereign Palestinian State: What are the Options in a Final Settlement?’, ERF Working Paper No. 1242.

Figure 1:
Change in consumption and availability of food and agricultural products in a liberal and non-discriminatory trade regime, compared to a continued customs union

Figure 2:
Change in consumption and availability of food and agricultural products in case of high tariffs on imports from Israel, compared to a continued customs union

Most read

Social insurance in Egypt: between costly formality and legal informality

The rates of participation of Egyptian workers in contributory social insurance has continued to decline, even during times when the country has had positive annual growth rates. This column discusses key institutional elements in the design of the current social insurance scheme that have contributed to the growing gap in coverage, particularly the scheme’s cost and eligibility requirements.

Making trade agreements more environmentally friendly in the MENA region

Trade policy can play a significant role in efforts to decarbonise the global economy. But as this column explains, there need to be more environmental provisions in trade agreements in which developing countries participate – and stronger legal enforcement of those provisions at the international level. The MENA region would benefit substantially from such changes.

Jordan: navigating through multiple crises

Jordan’s real GDP per capita is today no higher than it was 40 years ago. While external factors have undoubtedly had an adverse effect on the country’s economic outcomes, weak macroeconomic management and low public spending on investment and the social sectors have also played a substantial role. This column explores what can be done to reduce high public debt, accelerate private sector development and enhance social outcomes.

Iran’s globalisation and Saudi Arabia’s defence budget

How might Saudi Arabia react to Iran's renewed participation in global trade and investment? This column explores whether the expanding economic globalisation of Iran, following the lifting of nuclear sanctions, could yield a peace dividend for Saudi Arabia, consequently dampening the Middle East arms competition. These issues have attracted increased attention in recent times, notably after a pivotal agreement between the two countries in March 2023, marking the resumption of their political ties after a seven-year conflict.

Egypt and Iraq: amenities, environmental quality and taste for revolution

The Middle East and North Africa is a region marked by significant political turbulence. This column explores a novel dimension of these upheavals: the relationship between people’s satisfaction with, on one hand, the amenities to which they have access and the environmental quality they experience, and, on the other hand, their inclination towards revolutionary actions. The data come from the World Value Survey collected in 2018 in Egypt and Iraq.

Global value chains and domestic innovation: evidence from MENA firms

Global interlinkages play a significant role in enhancing innovation by firms in developing countries. In particular, as this column explains, participation in global value chains fosters a variety of innovation activities. Since some countries in the Middle East and North Africa display a downward trend on measures of global innovation, facilitating the GVC participation of firms in the region is a prospective channel for stimulating underperforming innovation.

Labour market effects of robots: evidence from Turkey

Evidence from developed countries on the impact of automation on labour markets suggests that there can be negative effects on manufacturing jobs, but also mechanisms for workers to move into the services sector. But this narrative may not apply in developing economies. This column reports new evidence from Turkey on the effects of robots on labour displacement and job reallocation.

Food insecurity in Tunisia during and after the Covid-19 pandemic

Labour market instability, rising unemployment rates and soaring food prices due to Covid-19 are among the reasons for severe food insecurity across the world. This grim picture is evident in Tunisia, where the government continues to provide financial and food aid to vulnerable households after the pandemic. But as this column explains, the inadequacy of some public policies is another important factors causing food insecurity.

Do capital inflows cause industrialisation or de-industrialisation?

There is a clear appeal for emerging and developing economies, including those in MENA, to finance investment in manufacturing industry at home with capital inflows from overseas. But as the evidence reported in this column indicates, this is a potentially risky strategy: rather than promoting industrialisation, capital flows can actually lead to lower manufacturing value added and/or a reallocation of resources towards industries with lower technology intensity.

Manufacturing firms in Egypt: trade participation and outcomes for workers

International trade can play a large and positive role in boosting economic growth, reducing poverty and making progress towards gender equality. These effects result in part from the extent to which trade is associated with favourable labour market outcomes. This column presents evidence of the effects of Egyptian manufacturing firms’ participation in exporting and importing on their workers’ productivity and average wages, and on women’s employment share.