Any future permanent economic agreement between Israel and Palestine will have to determine,
among other things, the appropriate trade regime and the question of economic borders. Writing in
the latest issue of the Economic Journal, Arnie Arnon and Jimmy Weinblatt argue that the
establishment of economic borders - less-than-full integration - would be preferable to a regime of
complete economic integration.
They acknowledge that the decision on a trade regime will have to satisfy goals of economic
development, including a future reduction in economic and social gaps between the two countries,
and questions of sovereignty. Their paper describes and analyses the evolution of the Palestinian
economy before and after the Oslo agreements. Concerning a future agreement, it discusses the
trade-offs between sovereignty and prosperity and argues for the establishment, at first, of
economic borders and a regime characterised by less than full integration.
In 1994, following the September 1993 breakthrough in political negotiations between Israel and
the Palestinians, an economic agreement between the PLO and Israel was reached in Paris. The
Paris Protocol, as the agreement is called, defined the de jure regime for an interim period of five
years. Its wording expresses the desire to bring prosperity to the Palestinian economy.
But according to Arnon and Weinblatt, the economic crisis that has occurred since Oslo in the
WBGS is the result inter alia of the circumstances generated by the Paris agreement. A clear
conflict emerged between the Protocol's basic premises concerning economic borders and the new
reality. Nevertheless, this conflict has not brought the sides back to the negotiating table to
reconsider the various elements of the agreement. Currently, apart from the enormous political
problems, a major issue that has to be settled regards the long-term economic relations between
Israel and Palestine.
The authors describe the unusual economic ties between Israelis and Palestinians, and their
evolution since 1967. Furthermore, it analyses the Paris Protocol signed in 1994 and the economic
developments between 1994-9. Special attention is given to the structural weaknesses of the
Protocol and the factors that should have led the architects of the agreement to anticipate the
obstacles in attaining its goals.
The paper presents an analysis of 'economic sovereignty', emphasising both control over borders
and freedom to choose economic policies as elements of sovereignty. It reveals the trade-offs
between sovereignty and prosperity in the Palestinian case and argues for the establishment of
economic borders - a regime characterised by less-than-full integration - and proposes that such an
arrangement might constitute a better macroeconomic environment than one with complete
economic integration.
Notes for Editors: 'Sovereignty and Economic Development: The Case of Israel and Palestine' by
Arnie Arnon and Jimmy Weinblatt is published in the June 2001 issue of the Economic Journal.
The authors are at Ben-Gurion University of the Negev, Beer-Sheva, Israel.
For Further Information: contact Arnie Arnon on 00-972-8647-2271 (email:
arnona@bgumail.bgu.ac.il); or RES Media Assistant Niall Flynn on 020-7878-2919 (email:
nflynn@cepr.org).