The Economic Integration of Agriculture in Israel and Palestine

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Political tensions between Israel and Palestine have led to extensive border restrictions between these two countries and movement restrictions within Palestine. Hence, although Israel and Palestine maintain a customs union vis-à-vis third countries, they are not a free trade area, and cannot realise potential gains from trade in inputs and final products. The objective of this project is to foster cooperation between Palestine and Israel by analysing the potential benefits of removing these restrictions for agriculture and the economy as a whole. Three types of analysis are foreseen. First, analysis of spatial price transmission within the West Bank and between the West Bank and Israel will reveal how restrictions affect prices and welfare. Second, simulation models will be used to study the economic impact of removing restrictions. A partial equilibrium model will generate detailed results for the horticultural sector. Inputs for this model will be provided by an analysis of opportunities for cooperation between Palestinian and Israeli growers and exporters of horticultural products, and by an analysis of willingness to pay for joint Israeli-Palestinian products in the EU. A regional general equilibrium model of the West Bank and Israel will provide a broader economy-wide perspective of the impact of removing restrictions. It will also be used to simulate changes in the Israeli/Palestinian quasi-customs union vis-à-vis the rest of the world, and the integration of Israel’s and Palestine’s agricultural sectors in the EU market as part of the ongoing Barcelona process. Third, the prospects for agricultural policy changes in Israel and the Palestine will be analysed based on the application of advanced political economy models to the agricultural sector.