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The Palestinian economy and its trade pattern: Stylised facts and alternative modelling strategies

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  • Botta, Alberto

Abstract

The World Bank (WB) Computational General Equilibrium model (CGE) by Claus Astrup and Sebastian Dessus (2001) is a cornerstone study on Palestine. It adopts a strictly neoclassical perspective, in which price-driven adjustments and the Armington/Constant-Elasticity-of-Transformation (CET) apparatus describe the functioning of the Palestinian economy and its foreign trade relations. This paper argues that certain empirical and factual inconsistencies prevent such a “pure” neoclassical approach from representing the Palestinian reality. We firstly argue that quantity-driven adjustments better describe economic adjustments within the Palestinian economy than price-driven adjustments do. Secondly, we stress the prevailing inter-industry nature of Palestinian foreign trade and the relevance of real income variables to explain expenditure allocation between domestic and imported goods. These aspects are hardly caught by the Armington/CET apparatus and require an alternative formalizing strategy. The final section of the paper describes a heterodox/structuralist perspective on Palestine.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 29719.

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Date of creation: Oct 2010
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Handle: RePEc:pra:mprapa:29719

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Keywords: Palestine; Foreign trade; Structuralist CGE models;

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  1. Marco Missaglia & Paul de Boer, 2004. "Food-For-Work versus Cash-For-Work: Emergency Assistance in Palestine," Economic Systems Research, Taylor & Francis Journals, vol. 16(4), pages 367-390.
  2. Sebnem Akkaya & Norbert Fiess & Bartlomiej Kaminski & Gael Raballand, . "Economics of 'Policy-Induced' Fragmentation: The Costs of Closures Regime to West Bank and Gaza," Working Papers 2008_09, Business School - Economics, University of Glasgow.
  3. Davies, Rob & Rattso, Jorn & Torvik, Ragnar, 1998. "Short-Run Consequences of Trade Liberalization: A Computable General Equilibrium Model of Zimbabwe," Journal of Policy Modeling, Elsevier, vol. 20(3), pages 305-333, June.
  4. Alberto Botta & Gianni Vaggi, 2011. "Palestine: a theoretical model of an Investment-Constrained Economy," Economics and Quantitative Methods qf1105, Department of Economics, University of Insubria.
  5. Bill Gibson & Dirk Ernst Van Seventer, 2000. "A Tale of Two Models: Comparing structuralist and neoclassical computable general equilibrium models for South Africa," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(2), pages 149-171.
  6. Arnon, A & Weinblatt, J, 2001. "Sovereignty and Economic Development: The Case of Israel and Palestine," Economic Journal, Royal Economic Society, vol. 111(472), pages F291-308, June.
  7. Peter Lloyd & Xiao-guang Zhang, 2006. "The Armington Model," Staff Working Papers 0602, Productivity Commission, Government of Australia.
  8. Winters, L. Alan, 1984. "Separability and the specification of foreign trade functions," Journal of International Economics, Elsevier, vol. 17(3-4), pages 239-263, November.
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