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Movement Restrictions, Agricultural Trade and Price Transmission between Israel and the West Bank

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  • Rico, Ihle
  • Rubin, Ofir D.

Abstract

Imposing military security measures as a consequence of violent conflict may lead to depressing economic effects for all parties involved. One implication is the limited ability to conduct trade, which in turn brings about welfare losses to the economic agents involved and may threat livelihoods and food security. This paper focuses on the consequences of the Israeli-Palestinian conflict, as a prominent example, on bilateral agricultural trade and price dynamics. For this purpose, we consider high-frequency wholesale price data and data on movement restrictions (complete closures) which were imposed by the Israeli Defense Forces in the West Bank between May 2007 and December 2008. In particular, we study the price dynamics of cucumbers and apples, two crops which play an important role for bilateral trade. The spatial and temporal price relationships are assessed using a cointegration framework. Specifically, we use a novel multivariate exogenous regime-switching vector error correction model and employ a recently developed extension of Johansen’s cointegration estimation method. We find the wholesale markets of cucumbers and apples in Hebron and Tel Aviv to be integrated. For both products, the price differentials between both markets quickly adjust to short run deviations from the long-run price equilibria. The regime-dependent model suggests that the movement restrictions effectively cut off both markets from each other temporarily.

Suggested Citation

  • Rico, Ihle & Rubin, Ofir D., 2011. "Movement Restrictions, Agricultural Trade and Price Transmission between Israel and the West Bank," Discussion Papers 117021, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
  • Handle: RePEc:ags:huaedp:117021
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    File URL: http://purl.umn.edu/117021
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    Cited by:

    1. Geesche M. Merkle & Rico Ihle & Yael Kachel & Ulf Liebe, 2013. "Economic cooperation despite of political conflict: Israeli traders’ perception of Israeli-Palestinian food trade," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 151, Courant Research Centre PEG.

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    Keywords

    Agricultural trade; cointegration; Israel; regime-dependent error correction; price transmission; Palestinian territories.; International Relations/Trade; Marketing; Political Economy;

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