Firms’ Lifecycle under Conflict-Related Mobility Restrictions in Palestine: Evidence from Establishment Censuses

The Israeli occupation of Palestine has been accompanied by a repressive security and regulatory regime affecting the mobility of labor and capital. We explore how these policies have impacted Palestinian business establishments during 1997–2012, particularly between regions facing the most versus least restrictive regimes. We construct an index of mobility restrictions in individual governorates and years using principal component analysis of multiple indicators painstakingly collected from OCHA-oPt, B’Tselem, World Bank databases, and other sources. Implications for establishments’ operating and legal status, economic activity, and female and total employment are assessed during years when the occupation regime in individual governorates was at varying degrees of intensity. Our data – of up to 500,000 establishment-year observations – come from four waves of the Palestinian Establishment Census. Difference-in-difference type regressions show that establishments facing tighter security regimes in their governorates are more likely to suspend their operations through temporary or permanent closure, or engage in restructuring of their operations through preparatory or ancillary activities, rather than be in active operation. Restrictions are also associated with a reduction in establishments’ scale in terms of total employment, female employment, and female share of employment. Mobility restrictions are thus damaging to employment in Palestine for several reasons. Some firms do not survive, or enter hibernation engaging in peripheral activities. Surviving firms respond to restrictions by retaining fewer workers. Female workers appear to be the first to be fired, and last to be rehired. We find no evidence that establishments try to escape mobility restrictions in one governorate for another governorate, which validates our governorate-level analysis of the creation, expansion and disappearance of firms.