An Analysis of the Palestinian Foreign Trade During the Period 1995–2022: A Gravity Model Approach

This research investigates the determinants of Palestinian foreign trade by conducting a comprehensive analysis of various factors influencing both export and import volumes, using the gravity model as the analytical framework. The considered determinants include per capita GDP, Consumer Price Index (CPI), trade agreements, Israeli closure of commercial borders, and Geographical Distance. In terms of exports, the results demonstrate a statistically significant positive relationship with per capita GDP, affirming the hypothesis that heightened economic growth is associated with increased exports. On the import side, the Consumer Price Index (CPI) reveals a statistically significant positive association, showing that increased inflation is linked to a decline in imports, likely due to reduced purchasing power. Contrastingly, trade agreements show a complex relationship with both positive and negative potential impacts on both exports and imports. The complex nature of its impact necessitates further investigation. The Israeli closure of the commercial borders significantly hampers both import and export volumes, underscoring the challenges imposed by Israeli restrictions. Geographical Distance does not emerge as a significant factor in either exports or imports, challenging established economic theories regarding the impact of proximity on trade volumes. The research findings highlight the profound impact of Israeli occupation policies on the Palestinian economy, resulting in significant economic distortions and impeding economic development over several decades. Furthermore, the research shows the inability of the Palestinian Authority to implement independent economic policies due to the dominant role of Israel in decision-making processes. This inability, combined with the significant economic distortions caused by Israeli occupation policies, hinders further economic growth and development, as the Palestinian Authority cannot undertake crucial economic initiatives.