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UNITED
NATIONS
TD

        United Nations Conference on Trade and Development
UNCTAD/ECDC/SEU/6
11 November 1994

PROSPECTS FOR SUSTAINED DEVELOPMENT

OF THE PALESTINIAN ECONOMY

IN THE WEST BANK AND GAZA STRIP, 1990-2010:


A QUANTITATIVE FRAMEWORK




Prepared by the UNCTAD secretariat
















The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.


GE.94-54481


CONTENTS
Page
Table 1/1. WEST BANK AND GAZA STRIP: MAIN AGGREGATES, 1972-1990


1972 1975 1980 1987 1990
WEST BANK (thousands)

Population 628.0 672.4 721.4 852.9 933
Labour force 126.6 133.9 137.2 182.2 201
Total domestic employed 90.3 91.9 94.2 114.7 116
Employed in Israel 34.9 40.4 40.6 62.9 65

(millions of constant 1990 US$)

Value added in

Agriculture 128.9 180.9 301.7 251.9 372
Industry 28.6 49.9 53.4 100.4 65
Construction 29.8 94.0 108.5 224.4 99
Services 163.0 285.6 321.4 751.7 412
Gross domestic
product (GDP) 376.3 646.6 809.6 1400.2 1002
Private investment 63.4 104.1 241.8 349.1 276
Government investment 10.9 28.4 18.0 72.2 19
Exports 106.3 199.7 221.9 268.4 130
Imports 233.5 483.7 582.1 884.5 496
Net factor income 133.8 209.3 223.9 384.9 354
Gross national product
(GNP) 490.1 855.9 1033.4 1785.1 1356
Net transfers 49.6 15.2 65.6 76.4 55
Gross disposable income 539.7 871.1 1099.0 1861.5 1411

(constant 1990 US$)

Private consumption p.c. 610.7 1153.8 1150.8 1702.4 1008
GNP p.c. 780.4 1272.9 1432.5 2161.4 1452


GAZA STRIP (thousands)

Population 382.9 419.8 450.6 555.3 613
Labour force 64.6 72.7 81.3 101.7 113
Total domestic employment 46.1 46.5 46.4 54.2 59
Employment in Israel 17.5 25.9 34.5 46.0 40

(millions of constant 1990 US$)
Value added in
Agriculture 59.5 86.4 63.4 87.8 72
Industry 11.8 27.8 33.3 64.4 40
Construction 19.1 52.3 72.0 103.0 52
Services 92.6 127.5 173.6 179.9 128
Gross domestic product
(GDP) 183.5 292.9 346.3 481.2 300
Private investment 27.5 63.3 103.1 142.3 138
Government investment 15.7 33.5 14.4 28.5 17
Exports 89.8 155.7 193.1 189.1 19
Imports 189.7 372.1 404.0 597.7 298
Net factor income 73.0 132.1 181.3 347.6 194
Gross national product
(GNP) 256.5 425.0 527.6 828.8 494
Net transfers 61.7 52.8 60.4 61.5 94
Gross disposable income 318.2 477.8 588.0 890.3 588

(constant 1990 US$)
Private consumption p.c. 546.6 869.5 862.8 1177.6 568
GNP p.c. 669.9 1012.4 1170.9 1492.5 806
___________________________________________
Source: UNCTAD secretariat calculations, 1991
Table 1/2. WEST BANK AND GAZA STRIP: GROWTH RATES OF MAIN AGGREGATES, 1972-1990
(average annual growth rates)

1972-1975 1976-1980 1981-1987 1988-1990
_______________________________________________
WEST BANK

Population 2.3 1.4 2.4 3.0
Labour force 3.3 2.8 2.4 3.1
Total domestic employment 1.9 0.4 4.0 0.6
Value added in
Agriculture 11.9 10.8 -2.5 14
Industry 20.5 1.3 9.4 -14
Construction 46.6 2.9 10.9 -24
Services 20.6 2.4 12.9 -18
Gross domestic product 19.8 4.6 8.1 -11

Private consumption p.c. 20.8 1.3 5.8 -16
Private investment 17.9 18.4 5.4 -7
Government investment 37.5 -8.7 21.9 -36
Exports 23.4 2.1 2.8 -21
Imports 27.5 3.8 6.1 -18
Net factor income 22.5 1.4 8.1 -3
Gross national product
(GNP) 20.4 3.8 8.1 -9
GNP p.c. 17.7 2.4 5.6 -12
Net transfers -32.6 34.0 2.1 -11
Gross disposable income 17.3 4.8 7.8 -9


GAZA STRIP
Population 3.1 1.4 3.0 3.3
Labour force 3.9 3.3 2.8 3.3
Total domestic employment 4.4 2.2 3.1 -0.4
Value added in
Agriculture 13.2 -6.0 3.9 -6
Industry 33.2 3.6 9.9 -15
Construction 39.9 6.6 5.3 -20
Services 11.3 6.4 3.8 -17
Gross domestic product 16.9 3.4 4.8 -15

Private consumption p.c. 16.7 -0.2 4.5 -22
Private investment 32.1 10.2 4.7 -1
Government investment 28.7 -15.6 10.3 -16
Exports 20.1 4.4 -0.3 -54
Imports 25.2 1.7 5.8 -20
Net factor income 21.9 6.5 9.7 -18
Gross national product
(GNP) 18.3 4.4 6.6 -16
GNP p.c. 14.8 2.9 3.5 -19
Net transfers -5.0 2.7 0.2 15
Gross disposable income 14.5 4.2 6.1 -13
__________________________________________
Source: UNCTAD secretariat calculations, 1991
Table 1/3. WEST BANK AND GAZA STRIP: SELECTED INDICATORS, 1972-1990
(ratios in per cent)

1972 1975 1980 1987 1990
____________________________________________________________________

WEST BANK
Unemployment/labour force 2.4 1.2 1.7 2.5 10*
Employment shares (domestic)
Agriculture 38 35 33 26 27
Industry 15 16 15 17 18
Construction 7 8 11 12 11
Services 40 41 41 45 44
Employment in Israel/
employed labour force 28 31 30 35 36
Labour productivity
(GDP/employment) 4 7 8 12 8
Savings / GDP -14 -23 -12 -14 -7
Savings / GNP 12 7 12 11 21
Investment / GDP 20 20 32 30 29
Investment / GNP 15 15 25 24 22
Housing / private investment 69 81 82 79 .
Housing / total investment 47 88 59 70 .
Imports / private consumption 61 67 70 61 53
Imports / GDP 62 76 72 63 50
Trade balance / GDP -34 -44 -44 -44 -37

(millions of current US$)

Current account balance 23 -39 -55 -100 166
Merchandise trade balance -48 -118 -211 -405 -242

GAZA STRIP
Unemployment/labour force 1.5 0.4 0.5 1.6 12*
Employment shares (domestic)
Agriculture 25 27 19 16 19
Industry 13 12 19 18 15
Construction 4 5 8 8 12
Services 58 56 55 58 54
Employment in Israel/
employed labour force 27 36 43 46 40
Labour productivity
(GDP/employment) 4 6 7 9 5
Savings / GDP -31 -41 -27 -49 -41
Savings / GNP 6 3 17 13 14
Investment / GDP 23 33 34 35 52
Investment / GNP 17 23 22 21 31
Housing / private investment 51 68 88 77 .
Housing / total investment 32 50 78 64 .
Imports / Private consumption 91 102 104 91 85
Imports / GDP 103 127 117 124 99
Trade balance / GDP -54 -74 -61 -85 -93

(millions of current US$)

Current account balance 13 -25 30 20 74
Merchandise trade balance -32 -96 -114 -252 -214
__________________________________________
Source: UNCTAD secretariat calculations, 1991
* Ratios estimated under the quantitative framework
CHAPTER II

STRUCTURE AND FUNCTIONING OF THE QUANTITATIVE FRAMEWORK

Introduction

The main objective of the quantitative framework is to project and analyse the behaviour of major demographic and economic variables which have implications for the sustained growth and development of the Palestinian economy. The variables investigated include: population, labour force and employment (both at the aggregate and the sectoral levels); domestic production and the main components of aggregate demand, namely, income, consumption, saving, investment, and transfers from abroad, as well as the export and import of goods and services.

The framework is based on a time series analysis of empirical data for 1972-1990, with the resultant set of equations providing the necessary parameters for projections. Most of the relationships expressed are simple trend-based functions fitted to time series. The primary use of the framework is to generate credible values of key variables under different parametric assumptions. In other words, the framework does not attempt to construct complex models for explaining the historical behaviour of individual sectors or economic variables, for several reasons. Firstly, the main purpose of this exercise is to assess possible future macroeconomic performance in light of prevailing circumstances and based on assumptions reflecting possible changes in political climate, rather than to test behavioral hypotheses. Secondly, the scope of the exercise is constrained by the availability of the time series, which are highly aggregated and do not allow a more detailed specification of equations. Thirdly, the poor quality of the data limits the applicability and usefulness of complex econometric analysis. Hence, attempting overly-sophisticated formulations did not seem fruitful.

In preparing projections based on time series, the last few years of the period covered are important determinants of future trends. In the case of the occupied territory, normal economic activities since 1987 have been seriously disrupted by strikes, curfews and an intensification of restrictive measures. Thus, it was imperative to incorporate the impact of this period in an explicit manner. In order to avoid mis-specification and to capture the effect of the turbulence during this period, a dummy variable (labelled INT) reflecting intensification of the harsh policy environment was introduced alongside other variables, with its value set to 0 for the years up to 1987, and to 1 thereafter. The coefficient of the variable gives the average impact of the three years of 1988-1990 on the trends indicated for other variables.

The quantitative framework is structured in three component blocks which are linked in a recursive way. The first block consists of the demographic accounting system which generates projected population breakdown by age and sex, both emigrated and resident in the territory. This set of information leads to the second block, which is concerned with the projected evolution of the total and sectoral labour force, its employment and productivity. In the third block, the main macroeconomic relationships are analysed and projected, and labour-employment, export-import and savings-investment gaps are calculated. The major functions established under the quantitative framework are presented in table 2/1. The following paragraphs provide a brief description of the structure and the functioning of the three components, and of the main assumptions affecting the functioning of the framework.21/ These assumptions are comprehensively presented at the beginning of chapter III and variations therein are subsequently introduced in the baseline variant as well as in the alternative scenarios presented in chapters IV and V. It should be noted that the year 1990 serves both as the final observation year for purposes of generating parametric functions, and as the first year for which values are projected by the framework (in a manner that ensures correspondence between the actual and the projected values for 1990).

In view of the absence of historical data for east Jerusalem, a special set of mathematical functions was established which calculates projections for east Jerusalem on the basis of results obtained for the West Bank. The manner in which this has been handled is explained in section E of this chapter.

A. The demographic component

The demographic component, which consists of a demographic accounting system, projects the evolution of the population by age and sex (POP) under exogenously set assumptions on fertility and mortality patterns and emigration rates. These projected behavioral parameters are estimated on the basis of the available data for the 1970-1990 period, with certain possible adjustments according to the scenario envisaged. The total fertility rate is expected to decline to around six children per woman before the year 2000, and 4-4.5 around the year 2010.22/ While total fertility levels and life expectancy are extrapolated using countries of the region as bases of comparison, parameters referring to the age-specific distribution of fertility and mortality rates are kept constant in the baseline scenario projections.

Similarly, emigration rates, which also affect population levels, are kept constant at rates according to the scenario envisaged. In the baseline scenario, the average rates prevailing in the 1980s (i.e. 1 per cent and 0.8 per cent of total population in the West Bank and Gaza Strip, respectively) are assumed. In each case, the corresponding rate is applied to all age cohorts since reliable age-specific estimates for emigration are not available. Contrary to what might be expected, this method should not introduce a great degree of bias, as emigration of Palestinians from the 1970s onwards primarily a family phenomenon, rather then mainly an emigration of working age persons.

Given these parameters, the accounting system generates projections for male and female population at single ages in the following way. For the age group 0 to 1, in each projection year the new population is derived as the product of female population of childbearing ages and its corresponding age-specific fertility rate, minus infant mortality, minus emigration. For all other age cohorts, the new population is derived as previous year's population, one year younger in age, reduced by the number of persons expected to have died or emigrated in that age cohort.23/

B. The labour force component

In the labour force block, the quantitative framework focuses on three aspects of the labour force, namely size, sectoral productivity and sectoral employment in the domestic economy and in Israel. The size of the labour force (LF) is calculated by applying fixed age and sex-specific labour force participation rates to their respective population cohorts, and then adding them up. As for the sectoral distribution of the employed labour force, labour employed in the domestic economy was divided into four main sectors (agriculture, industry, construction, services), with the labour force employed in Israel treated effectively as a fifth sector. Sectoral labour shares (LSi) are calculated and regressed against time. The resulting time trends are then used to extrapolate the future sectoral labour force distribution. As for the workforce employed in Israel, it is treated for projection purposes as a variable whose level changes according to the scenario being considered. In all scenarios, it is assumed that the number of Palestinians employed in Israel remains constant at 1991 levels over the projection period.

Having calculated labour shares, total and relative sectoral labour productivity (LFP) levels are derived, with the latter defined as the ratio of the sectoral labour productivity over total labour productivity. These levels are projected either according to regression results or (when the latter are inconclusive) to exogenously determined assumptions. This allows the calculation of future sectoral shares, and hence of total domestic output levels.

The time trends and logistic curves used in this block to extrapolate the trends in sectoral labour are presented in table 2/2, while table 2/3 gives the selected equations for relative labour productivities. Variables whose future growth paths are determined by exogenously set assumptions (such as total labour productivity) do not appear in the tables, but are discussed in chapter III.24/

C. The economic component

The economic component of the framework focuses on: the productive capacity of the occupied territory; the main macroeconomic components of demand in gross domestic product (GDP); gross national disposable income (GNDI); and the current account balance (CAB). The estimated relationships are based on 1972-1990 data in constant prices converted into 1990 US dollars. The main behavioral relationships are detailed below.

On the demand side, private consumption (CP) is regressed on gross national disposable income (GNDI), which includes GDP and two components on which private expenditure depends to a considerable extent, namely net factor income (NFI-mainly from Palestinians working in Israel) and net transfer payments (NTR). As a constraint which is active in the baseline scenario, it is assumed that the real per capita consumption in the occupied territory in the projection period would not fall below levels projected for 1991, which are believed to be some 50 per cent lower than in 1987. Taxes, usually considered as a component of NTR and GNDI, are not calculated separately nor could they be satisfactorily integrated into the framework, owing to the incomplete coverage of available series and the absence of any explanatory variables for those series that do exist.

Private investment (IP), which is only classified in official data by "building and construction" and "machinery and equipment", is also explained as a function of GNDI.25/ For projection purposes (where private investment is a single aggregate) and assuming a capital output ratio of 3, housing investment may be derived as a residual after directly productive investment has been deducted from total investment. This can give a rough estimate of the resources that would be available for construction purposes.

Government consumption (CG) and investment (IG) are assumed to grow at the same rate as GDP, reflecting both the need for government expenditures as well as the potentially taxable income. While this assumption is maintained in the baseline scenario, other options are considered in alternative scenarios, reflecting different priorities and goals.

Regarding foreign trade, since imports (M) depend on the availability of foreign exchange and are destined mainly for consumption, they are also regressed against GNDI.26/ Exports (X) are exogenously determined in the framework owing to the poor explanatory power of the time variables. Under the baseline scenario, the selected rates of growth of (X) reflect the average performance of the past 20 years as captured by the two log-time equations.

Having determined GDP at market price, it remains to specify foreign flows so as to determine gross national product (GNP) and GNDI. Thus, NFI is explained by the number of persons working in Israel and the growth of GDP per capita in Israel, the latter acting as the most suitable available proxy for the income these workers earn. As for NTR (mainly constituted by private transfers of emigrants), in the framework they are a function of the number of emigrants.

Finally, CAB is obtained by adding NFI and NTR to the balance of goods and non-factor services (TB). No specific assumptions are made on the capital account as concerns different sources of financing. Since available data on the Palestinian balance of payments only refers to net capital movements (liabilities, foreign assets and foreign exchange holdings of Palestinian residents), no meaningful capital account could be integrated into the framework.

As for the supply side of the economy, it is mainly determined by the availability of labour in the previously mentioned four economic sectors and by their respective levels of labour productivity. In this manner, it is possible to calculate potential domestic output, i.e. that output which would result from a full employment of the labour force. However, actual demand for GDP is assumed to determine actual production. And to the extent that this output can be produced at the corresponding prevailing productivity levels by fewer people than the total available labour force, there could be a gap between actual GDP as determined by demand, and potential GDP as determined by the supply of labour of the territory. According to this framework, this gap is balanced out by the unemployment rate (UNEMPL), which measures the shortfall in the full utilization of the labour force.

The framework also permits the examination of other gaps that could hamper the full utilization of the productive capacity of the Palestinian economy in the occupied territory. Specifically, it considers the trade (or foreign exchange) gap resulting from the difference between future imports and exports, as well as the gap between required investments and available national and domestic savings. The main equations retained for the economic component of the framework are presented in Table 2/4.27/

D. The case of east Jerusalem

As pointed out earlier, a chief constraint posed by available empirical data on the occupied territory is the lack of information on economic activity in east Jerusalem, which is not treated by the CBS as part of the occupied territory, but as part of Israel. Published official data only cover population and some aspects of labour force and employment. Consequently, east Jerusalem could not be incorporated in the quantitative framework in the same way as the rest of the West Bank or Gaza Strip, since the set of equations and parameters necessary for the projections could not be obtained.

However, given the inter-linkages between east Jerusalem and other parts of the occupied territory (especially the rest of the West Bank), and in view of its particular economic importance, a solution was necessary, if only for illustrative purposes. East Jerusalem could be incorporated in the projections if actual relationships between its demographic and economic characteristics with those of the rest of the occupied territory could be more clearly determined. Given the integration of many of its economic activities with those of the West Bank, the values of economic, demographic and labour force variables for east Jerusalem can be expressed in terms of their significance vis-à-vis the corresponding known values of these variables for the West Bank. Furthermore, data on population, the labour force, and sectoral employment, for available recent years, can together trace the broad lines of economic activity in east Jerusalem. In other words, aggregate economic projections for east Jerusalem can be obtained once they are expressed as a ratio of the corresponding projections for the rest of the West Bank.28/

The framework established for east Jerusalem consists essentially of mathematical functions and accounting identities. Although organized in the same manner as the framework established for the rest of the occupied territory, the components of the framework for east Jerusalem are not linked to each other in a recursive way. Rather, they are calculated on the basis of projections for a number of key variables in the rest of the West Bank. Since these components vary depending on the scenario envisaged, projections for east Jerusalem under different scenarios will accordingly vary in proportion to the different projections for the rest of the West Bank.

While this method might obscure some of the important specificities of east Jerusalem's economy, the resulting projections provide the only quantitative illustration of the future trends in population, labour force, and economic activity that can be envisaged for east Jerusalem at present. Additional empirical data on variables such as domestic output, external sources of income, imports and exports, consumption and investment patterns, would certainly help to define more accurately this initial characterization of east Jerusalem's aggregate economy. The relationships used to incorporate east Jerusalem in the rest of the quantitative framework are briefly listed below, and are also presented in table 2/5.

1. Population 2. The labour force component 3. The economic component Table 2/1. FUNCTIONS, IDENTITIES AND VARIABLES OF THE QUANTITATIVE FRAMEWORK

1. POP(age,sex) = f {POP(age,sex)t-1, Fertility,
Mortality, Emigration}
2. LF = POP(age,sex) * LFPR(age,sex)
LF(i) = f {LF,t}
ELF(i) = LF(i) * (GDP/GDPP)
ELF = sum{ELF(i)}
UNEMPL = (LF-LISR) * (GDPP/GDP - 1)
LFP = exogenous
LFP(i) = f {LFP,t}
3. GDPP(i) = f {LF(i),LFP(i)}
GDPP = sum{GDPP(i)}
GDP = CP + CG + IP + IG + X - M
GDP(i) = GDPP(i) * GDP/GDPP
GNP = GDP + NFI
GNDI = GDP + NFI + NTR
CP = f {GNDI, lagged CP}
CG = f {GDP}
IP = f {GNDI}
IG = f {GDP}
M = f {GNDI}
X = f {t or exogenous}
NFI = f {workers in Israel, GDP per capita of
Israel}
NTR = f {t, emigration}
TB = (X - M)*
CAB = (X - M)*+ NFP + NTR
----------------------------------------------------------------
POP = Population by age and sex
LFPR = Labour force participation rates by age and sex
LF = Labour force
UNEMPL = Unemployment rate
ELF = Employed labour force
LISR = Labour force employed in Israel
LFP = Total labour force productivity
LFP(i) = Sectoral labour force productivity
GDPP = Potential output resulting from full employment at current productivity levels
GDPP(i) = Potential sectoral output
GDP(i) = Actual sectoral output
GDP = Gross domestic product at market price
NFI = Net factor income from abroad
NTR = Net current transfer payments
GNP = Gross national product
GNDI = Gross national disposable income
CP = Private consumption
CG = Government consumption
IP = Private investment
IG = Government investment
M = Imports ( * for balance of payments definition)
X = Exports ( * for balance of payments definition)
TB = Trade balance
CAB = Current account balance
(i) : agriculture, industry, construction, or services
Table 2/2. TRENDS IN SECTORAL LABOUR SHARES
(derived from 1972-1990 data; t-values in brackets; coefficients significant at 5%)



EXPLANATORY VARIABLES REGRESSION DIAGNOSTICS


Equation Dependent Dummy Time Logtime R2 Prob>F First Order
No. Variable Intercept (INT) (t) (logt) Autocorrelation

GAZA STRIP

I.2.1 a LSAGR -0.290 0.256 -0.037 .88 0.0001 -0.022
(LSA10) (5.21) (-10.53)

I.2.2 LSIND 7.546 -2.765 3.416 .57 0.0012 0.341
(-2.44) (4.58)

I.2.3 LSCON -0.639 1.800 3.279 .86 0.0001 -0.010
(2.57) (7.13)

-- LSSVC calculated as a residual share

WEST BANK

II.2.1 a LSAGR -0.270 0.0347 -0.0104 .81 0.0001 -0.485
(LSA10) (1.71) (-7.13)

II.2.2 LSIND 14.815 0.706 0.077 .58 0.0010 -0.389
(1.51) (2.47)

II.2.3 LSCON 3.285 -1.821 3.175 .88 0.0001 0.325
(-4.05) (10.74)

II.2.4 LSSVC 39.258 0.2452 .60 0.0001 -0.137
(5.037)


(a) A logistic function, where LSA10 = LOG (1 - 10 / LSAGR), beginning in 1973 in the case of Gaza Strip, and 1972 in the West Bank

NOTES:

T-values: are used to test if the parameter estimated differs significantly from 0, which is usually the case when the t-value is around 1.9 at the 5% significance level.
R2: the coefficient of determination, which indicates the proportion of variance in the dependent variable that is explained by the knowledge of the explanatory variable.

Pr > F: gives the test statistic and the probability value for the null hypothesis that the regression does not explain the data. Low values of the statistic mean that the regression does explain the data and is significant overall.

Logistic function : is a functional form that places a ceiling/floor beyond which the future level of the dependent variable may not rise/fall, thus placing a limit on its rate of growth over time. The first case describes LSA10.
Table 2/3. TRENDS IN SECTORAL LABOUR PRODUCTIVITY

(derived from 1972-1990 data; t-values in brackets; coefficients significant at 5%)


EXPLANATORY VARIABLES REGRESSION DIAGNOSTICS


Equation Dependent Dummy Time Logtime R2 Prob>F First Order
No. Variable Intercept (INT) (t) (logt) Autocorrelation

GAZA STRIP

I.3.1 LFPAGR 1.546 0.312 -0.139 .33 0.0412 0.342
(2.74) (-1.86)

-- LFPIND calculated as the average of 1985-1989 LFPIND

I.3.2 a LFPCON -0.170 -0.166 -0.0126 .71 0.0001 -0.052
(LFCO9) (-2.51) (-2.65)

I.3.3 b LFPSVC -0.367 1.410 -0.126 .38 0.0461 0.140
(LFS11) (2.50) (-2.63)

WEST BANK

II.3.1 c LFPAGR -0.013 2.265 -0.164 .32 0.0690 -0.009
(LFA08) (2.40) (-2.23)

II.3.2 LFPIND 0.680 -0.068 .58 0.0001 0.424
(-4.89)

II.3.3 d LFPCON -1.191 -0.137 .46 0.0155 -0.436
(LFC15) (-2.91)

-- LFPSVC calculated as the average of 1985-1989 LFPSVC

Logistic functions

a) LFC09 = LOG (1 - 0.9 / LFPCON), beginning 1973
b) LFS11 = LOG ((1.1 / LFPSVC) -1), beginning 1975
c) LFA08 = LOG (1 - 0.8 / LFPAGR), beginning 1974
d) LFC15 = LOG (1 - 1.5 / LFPCON), beginning 1974

NOTE: For explanations of t-values, R2, and Pr > F, and logistic functions, see notes on Table 2/2.
Table 2/4. FUNCTIONS OF THE ECONOMIC COMPONENT

(derived from 1972-1990 data; t-values in brackets; coefficients significant at 5%)



EXPLANATORY VARIABLES REGRESSION DIAGNOSTICS


Equation Dependent Dummy Variable Variable R2 Prob>F First Order
No. Variable Intercept (INT) (1) (2) Autocorrelation

GAZA STRIP

I.4.1 CP 39.892 -104.390 0.416 GNDI 0.333 CP_ .84 0.0001 0.345
(-3.77) (3.33) (1.98)

I.4.2 IP -29.456 0.216 GNDI .82 0.0001 0.349
(8.76)

I.4.3 LogX 4.893 -1.797 0.026 T .67 0.0001 0.155
(-5.04) (1.47)

I.4.4 M 19.415 -160.589 0.6787 GNDI .91 0.0001 0.178
(-7.11) (11.96)

I.4.5 NTR 36.614 76.996 7.032 MOV .74 0.0001 -0.213
(6.45) (2.580)

I.4.6 NFI -10.575 -65.149 0.0009 LYISR .87 0.0001 0.153
(-3.33) (10.34)

WEST BANK

II.4.1 CP 9.402 -144.505 0.770 GNDI .97 0.0001 -0.484
(-4.91) (22.77)

II.4.2 IP -48.207 0.217 GNDI .85 0.0001 -0.108
(9.77)

II.4.3 LOGX 4.798 -0.775 0.053 T .71 0.0001 0.086
(-5.64) (5.76) (10.74)

II.4.4 M 58.384 -176.649 0.4723 GNDI .88 0.0001 0.108
(-4.25) (10.86)

II.4.5 NTR 30.018 49.510 2.376 MOV .47 0.0088 -0.245
(3.54) (2.56)

II.4.6 NFI 33.521 0.0004 LYISR 0.358 NFI__ .86 0.0001 0.085
(2.92) (1.86)


NOTE: For explanations of t-values, R2, and Pr > F, see notes on Table 2/2.

Table 2/5. FUNCTIONS AND IDENTITIES FOR EAST JERUSALEM

1. POP(t) = 16% POP(t)WB
2. LF(t) = 14% LF(t)WB
TELF(t) = 13% TELF(t)WB
UNEMPL(t) = LF(t) - TELF(t)
LISR(t) = 11% TELF(t)
ELF(t) = TELF(t) - LISR
ELF(i) = ELF(i)(1986-1988)/ELF(1986-1988) * ELF(t)
LFP(i) = GDP(i)WB/ELF(i)WB
3. GDPF(i) = LFP(i) * ELF(i)
GDPF(t) = sum{GDPF(i)}
NITP(t) = 0.056 * GDPF(t)
GDP(t) = GDPF(t) + NITP(t)
SHARE(t) = GDP(t)/GDP(t)WB
CP = RATIO(t) * CP(t)WB
CG = RATIO(t) * CG(t)WB
IP = RATIO(t) * IP(t)WB
IG = RATIO(t) * IG(t)WB
X = RATIO(t) * X(t)WB
M = RATIO(t) * M(t)WB
NFI(t) = (NFIWB/LISRWB)(t) * LISR
GNP(t) = GDP(t) + NFI(t)
NTR(t) = (NTRWB/POPWB)(t) * POP(t)
GNDI = GDP + NFI + NTR
TB = (X - M)*
CAB = (X - M)* + NFI+ NTR
------------------------------------------------------------------
POP = Population by age and sex
LF = Labour force
UNEMPL = Unemployment
TELF = Employed labour force
LISR = Labour force employed in Israel
ELF = Domestically employed labour force
ELF(i) = Domestically employed sectoral labour force
LFP(i) = Sectoral labour force productivity
GDPF(i) = Sectoral output
GDPF = Gross domestic product at factor cost
NITP = Net indirect tax on production
GDP = Gross domestic product at market price
NFI = Net factor income from abroad
NTR = Net current transfer payments
GNP = Gross national product
GNDI = Gross national disposable income
CP = Private consumption
CG = Government consumption
IP = Private investment
IG = Government investment
M = Imports ( * for balance of payments definition)
X = Exports ( * for balance of payments definition)
TB = Trade balance
CAB = Current account balance
(i) : agriculture, industry, construction, or services
CHAPTER III

SCENARIO ANALYSIS, 1990-2010: BASELINE AND BASELINE VARIANT

Using the quantitative framework described in chapter II, several scenarios are projected, each governed by a different set of assumptions affecting the behaviour of variables and the functioning of their parameters in the framework. The baseline scenario and its variant represent purely a hypothetical situation. Accordingly, projections for the economy under this scenario and its variant rest on the general assumption of a continuation into the future of the major trends and policy constraints that characterized the first 23 years under Israeli occupation (i.e. 1967-1990).

As such, the resultant projections do not represent a likely, nor desirable, outcome for the period ahead. Rather, the unconstrained trend analysis extrapolates the past performance of the Palestinian economy (with the structure and policy environment still prevailing in 1990) over a 20-year time horizon, showing what would happen should the future situation continue to be governed by prevailing circumstances. They are thus presented in this study purely for illustrative purposes, and as a technical yardstick and basis for comparison for the alternative scenarios. The projection period is divided into five-year intervals, with the analysis of future developments and emerging problem areas presented accordingly.
BASELINE SCENARIO

A. Main assumptions and qualifications

The following points summarize the major assumptions affecting data and calculations in the context of the quantitative framework for 1990-2010. All assumptions and subsequent calculations of the baseline scenario are based on the framework established for the period 1972-1990 for the West Bank and Gaza Strip.

1. The demographic component 2. The labour force component 3. The economic component B. Baseline scenario: main results (excluding east
Jerusalem)

The main baseline projection results are summarized below and are also presented in tabular form. Table 3/1 presents data in constant 1990 US dollars for benchmark years in the projection period (i.e. 1990, 1995, 2000, 2005 and 2010), while table 3/2 gives selected ratios. Table 3/3 shows compound annual growth rates of selected indicators for five-year intervals (1990-1995, 1996-2000, 2001-2005 and 2006-2010). Table 3/4 combines projections for the Gaza Strip and the West Bank excluding east Jerusalem, while table 3/5 provides the same information for the occupied territory including east Jerusalem.

All projections for the period 1991-1995 commence at an especially low level owing to the disruptive and generally depressive impact of developments in 1988-1990. In particular, events in 1990 (and 1991) led to severe declines in production and a fall in transfers and remittances from abroad, as well as a sharp decline in employment in Israel and hence in net factor income. After the initial period of 1991-1995, most variables would regain the trends established over the entire 1970-1990 period. Nevertheless, the assumption of the continued operation of the INT variable throughout the projection period introduces a strong depressive influence affecting calculations of all variables.
As such, the baseline scenario reflects what are probably the worst possible economic prospects (as in conditions of prolonged occupation). Indeed while it may be unlikely that baseline conditions will prevail, several considerations seem pertinent to presenting the baseline scenario for the 1990-2010 period. First is the historical record, whereby the baseline conditions reflect the situation that has been reached after 23 years of occupation. Secondly, the baseline scenario exhibits just how undesirable are the implications for the Palestinian economy of a future dominated by the same circumstances as during the past period of occupation. More importantly, the baseline scenario is useful especially in illustrating the main problems to be tackled in elaborating the subsequent alternative scenarios which are geared to ameliorating the future performance of the economy. These issues are depicted in greater detail in subsequent chapters with an analysis of implications for the future of the Palestinian economy.

To sum up, according to the baseline scenario: In conclusion, the baseline scenario shows clearly that if the economy of the occupied territory were to continue to operate under the structure and constraints prevailing in 1990, its performance and its ability to satisfy the needs of the Palestinian population would continue to deteriorate. The Palestinian economy would become increasingly burdened by the problems that have hampered its development in the past and in particular by: the weaknesses and disarticulations in and between domestic productive sectors, especially the stagnation of industry; an exceedingly high import dependency; the inability to mobilize sufficient domestic savings; and the strong dependency on external finance, a large part of which is generated from work in Israel. Furthermore, the absence of an active role for a central authority in planning, coordinating and safeguarding the interests of the domestic economy, would leave the occupied territory vulnerable to the vagaries of external developments. This is not to mention the depressive influence of the climate of uncertainty and risk.

According to the baseline scenario, these structural weaknesses would reinforce each other in such a way that they would prevent the economy from growing at rates achieved in the historical period. Indeed, a considerably less pronounced expansion of both GDP and GNP is depicted. Furthermore, since most variables would not regain their 1980s levels until around the year 2000, the 1990-2000 period would be a decade of forgone growth and development.

The scenario implies that Palestinian economic initiatives aimed at reducing conspicuous consumption and excessive import dependency, and at shifting consumer preference in favour of local produce would give two main results: private consumption would not grow faster than GDP, and the trade gap would narrow in the West Bank, while worsening marginally in the Gaza Strip, where it would continue to exceed 55 per cent of GNP. The Gaza Strip would also be unable to narrow its savings-investment gap, which would rise to 27 per cent of GNP.

However, these structural adjustments and problems are dwarfed by the unabated worsening of the unemployment situation, which would acquire increasingly dramatic proportions by the end of the projection period. Indeed, this seems to be the most pressing problem highlighted by the scenario, and it underlines the urgency of boosting domestic employment, aggregate demand and the productive capacity of the economy. Failing that, the inherited pattern of economic growth would soon bring the occupied territory to an untenable situation, if not to the brink of economic crisis and grave social pressures. These weaknesses would be further aggravated by demographic factors, especially the high rate of population growth, and to a lesser extent by the uncertainties related to emigration. While population growth would slow down and even fall slightly below the growth of output in the West Bank, both areas would witness a worsening of per capita GDP and GNP levels. In other words, the ailing economy would not even be able to maintain the resources currently available to the individual. Indeed, it becomes difficult to envisage the occupied territory surviving through the baseline scenario without the onset of total economic collapse.

C. Baseline scenario: main results (including east
Jerusalem)

The inclusion of east Jerusalem does not affect the general conclusions drawn from the results obtained under the baseline scenario for the occupied territory as a whole. However, the fact that east Jerusalem receives less net factor income than the rest of the West Bank, and that its economy is more services-oriented, imply minor changes in results for all of the occupied territory:
The inclusion of east Jerusalem does not affect the size of the major gaps in the economy. Hence, unemployment would still reach 50 per cent of the labour force in 2010, while the trade gap would still narrow to 34 per cent of GNP at the end of the period. The savings-investment gap would end marginally larger in the year 2010, at 14 per cent of the combined GNP compared to 13 per cent previously. Table 3/5 presents the main aggregate results for the combination of the three areas (i.e. the Gaza Strip and West Bank including east Jerusalem) under the baseline scenario.
Table 3/1. BASELINE SCENARIO: MAIN AGGREGATES, 1990-2010


1990 1995 2000 2005 2010
__________________________________________________________________

WEST BANK*
(thousands)

Population 933 1053 1170 1285 1390
Labour force 201 233 272 319 367
Total domestic employed 116 118 131 142 151
Employed in Israel 65 45 45 45 45

(millions of constant 1990 US$)

Total investment 295 275 310 349 389
Gross domestic product
(GDP) 1002 980 1110 1250 1397
Net factor income from
abroad 354 220 237 257 278
Gross national product
(GNP) 1356 1199 1347 1507 1675
Net transfers 55 58 61 64 67
Gross disposable income 1411 1258 1408 1571 1742
Merchandise trade balance -242 -226 -236 -238 -229
Current account balance 166 52 62 83 116

(constant 1990 US$)

Private consumption p.c. 1008 865 865 865 865
GDP p.c. 1073 930 949 973 1005
GNP p.c. 1452 1139 1152 1173 1205

GAZA STRIP
(thousands)

Population 613 710 816 931 1045
Labour force 113 136 164 197 233
Total domestic employed 59 59 64 70 75
Employed in Israel 40 30 30 30 30

(millions of constant 1990 US$)

Total investment 155 153 169 186 203
Gross domestic product (GDP) 300 309 347 388 430
Net factor income from
abroad 194 156 174 194 214
Gross national product (GNP) 494 465 521 582 644
Net transfers 94 100 106 112 118
Gross disposable income 588 565 627 694 762
Merchandise trade balance -214 -204 -233 -265 -296
Current account balance 74 53 47 41 36

(constant 1990 US$)

Private consumption p.c. 568 485 485 485 485
GDP p.c. 489 435 425 417 411
GNP p.c. 806 655 639 625 616
_______________________________________________

Note: Figures may not add up due to rounding.
* Excluding east Jerusalem.
Table 3/2. BASELINE SCENARIO: SELECTED INDICATORS, 1995-2010
(ratios in per cent)


1995 2000 2005 2010
______________________________________
WEST BANK*

Unemployed/ total labour force 30 35 42 47
Employment shares (domestic)
Agriculture 25 23 21 20
Industry 18 19 19 19
Construction 12 12 13 13
Services 45 46 47 48
Employed in Israel/
employed labour force 28 25 24 23

Savings / GNP 12 13 14 16
Investment / GDP 29 28 28 28
Investment / GNP 22 23 23 23
GDP / GNP 82 82 83 83
Trade balance / GNP -29 -28 -26 -24
Imports / private consumption 57 58 60 62


GAZA STRIP

Unemployed / total labour force 35 43 50 55
Employment shares (domestic)
Agriculture 16 15 14 13
Industry 16 17 17 18
Construction 12 12 13 13
Services 56 56 56 56
Employed in Israel /
employed labour force 34 32 30 29

Savings / GNP 9 7 6 5
Investment / GDP 50 49 48 47
Investment / GNP 33 32 32 32
GDP / GNP 66 67 67 67
Trade balance / GNP -57 -58 -59 -60
Imports / private consumption 83 83 83 83
______________________________________
Note: Figures may not add up due to rounding.
* Excluding east Jerusalem.
Table 3/3. BASELINE SCENARIO: GROWTH RATES OF MAIN AGGREGATES, 1990-2010
(compound annual growth rates of data in constant 1990 US$)

1991-1995 1996-2000 2001-2005 2006-2010
____________________________________________________

WEST BANK*

Population 2.5 2.1 1.9 1.6
Labour force 3.0 3.2 3.2 2.8
Total domestic employed 0.3 2.1 1.6 1.3
Labour productivity 1.0 1.0 1.0 1.0
Value added in
Agriculture -4.8 -0.2 0.5 0.7
Industry 2.0 3.7 3.2 2.8
Construction 2.6 4.1 3.3 2.9
Services 1.9 3.6 3.0 2.7
Gross domestic product (GDP) -0.5 2.5 2.4 2.3
Private consumption -0.6 2.1 1.9 1.6
Private investment -1.6 2.4 2.3 2.2
Government investment 0.8 2.5 2.4 2.3
Exports 5.0 5.0 5.0 5.0
Imports 1.0 2.6 2.5 2.3
Net factor income -9.1 1.5 1.6 1.6
Gross national product (GNP) -2.4 2.4 2.3 2.1
Net transfers 1.3 1.0 1.0 0.9
Gross disposable income -2.3 2.3 2.2 2.1
Private consumption p.c. -3.0 0.0 0.0 0.0
GNP p.c. -4.8 0.2 0.4 0.5


GAZA STRIP

Population 3.0 2.8 2.7 2.3
Labour force 3.6 3.9 3.8 3.3
Total domestic employed -0.1 1.7 1.7 1.6
Labour productivity 0.5 0.5 0.5 0.5
Value added in
Agriculture -2.8 -0.2 0.4 0.6
Industry 1.4 2.9 2.9 2.6
Construction -0.6 2.2 2.2 1.9
Services 2.6 3.3 2.8 2.3
Gross domestic product (GDP) 0.6 2.4 2.3 2.0
Private consumption -0.2 2.8 2.7 2.3
Private investment -0.5 1.9 1.9 1.8
Government investment 1.9 2.4 2.3 2.0
Exports 3.0 3.0 3.0 3.0
Imports -0.7 2.8 2.6 2.4
Net factor income -4.3 2.2 2.1 2.1
Gross national product (GNP) -1.2 2.3 2.2 2.0
Net transfers 1.2 1.1 1.2 1.1
Gross disposable income -0.8 2.1 2.0 1.9
Private consumption p.c -3.1 0.0 0.0 0.0
GNP p.c. -4.1 -0.5 -0.4 -0.3
_________________________________________________
Note: Figures may not add up due to rounding.
*Excluding east Jerusalem.
Table 3/4. BASELINE SCENARIO, 1990-2010: WEST BANK* AND GAZA STRIP
(compound annual growth rates and ratios of data in constant 1990 US$)


1991-1995 1996-2000 2001-2005 2006-2010
____________________________________________________

(compound annual growth rates)
Population 2.7 2.4 2.2 1.9
Labour force 3.2 3.4 3.4 3.0
Total domestic employed 0.2 2.0 1.7 1.4
Value added in
Agriculture -4.5 -0.2 0.5 0.7
Industry 1.8 3.4 3.1 2.7
Construction 1.6 3.5 3.0 2.6
Services 2.0 3.5 3.0 2.6
Gross domestic product (GDP) -0.2 2.5 2.4 2.2
Private consumption -0.5 2.3 2.1 1.8
Private investment -1.2 2.3 2.2 2.1
Government investment 1.3 2.4 2.4 2.1
Exports 4.8 4.8 4.8 4.8
Imports 0.3 2.7 2.5 2.3
Net factor income -7.3 1.8 1.8 1.8
Gross national product (GNP) -2.1 2.3 2.3 2.1
Net transfers 1.2 1.1 1.1 1.0
Gross disposable income -1.8 2.2 2.2 2.0
Private consumption p.c. -3.1 -0.1 -0.1 -0.1
GNP p.c. -4.6 -0.1 0.0 0.2
_________________________________________________

1995 2000 2005 2010
__________________________________________________

(ratios in per cent)
Unemployment / labour force 32 38 45 50
Employment shares (domestic)
Agriculture 24 20 19 18
Industry 17 18 18 18
Construction 12 12 13 13
Services 47 50 50 51
Employed in Israel /
employed labour force 30 28 26 25
Savings / GNP 11 11 12 13
Investment / GDP 33 33 33 32
Investment / GNP 26 26 26 26
GDP / GNP 77 78 78 79
Trade balance / GNP -37 -37 -36 -34
Imports / private consumption 64 65 67 68
(millions of constant 1990 US$)
Merchandise trade balance -430 -469 -503 -525
Current account balance 105 109 124 152
__________________________________________________
Note: Figures may not add up due to rounding.
* Excluding east Jerusalem
Table 3/5. BASELINE SCENARIO, 1990-2010: WEST BANK* AND GAZA STRIP
(compound annual growth rates and ratios of data in constant 1990 US$)


1991-1995 1996-2000 2001-2005 2006-2010
____________________________________________________

(compound annual growth rates)
Population 2.7 2.4 2.2 1.9
Labour force 3.2 3.4 3.4 3.0
Total domestic employment -2.2 1.9 1.6 1.4
Value added in
Agriculture -4.5 -0.2 0.5 0.7
Industry 1.5 3.4 3.0 2.7
Construction 1.3 3.4 2.9 2.6
Services 1.0 3.3 2.8 2.5
Gross domestic product (GDP) -0.6 2.5 2.4 2.2
Private consumption -0.9 2.3 2.1 1.8
Private investment -1.5 2.3 2.2 2.0
Government investment 1.1 2.5 2.4 2.1
Exports 4.4 4.8 4.8 4.8
Imports 0.1 2.7 2.5 2.3
Net factor income -7.2 1.9 1.9 1.8
Gross national product (GNP) -2.2 2.4 2.3 2.1
Net transfers 1.2 1.1 1.1 1.0
Gross disposable income -2.0 2.3 2.2 2.0
Private consumption p.c. -3.4 -0.1 -0.1 -0.1
GNP p.c. -4.7 0.0 0.1 0.2
_________________________________________________

1995 2000 2005 2010
__________________________________________________

(ratios in per cent)
Unemployment / labour force 32 38 45 50
Employment shares (domestic)
Agriculture 20 18 17 16
Industry 17 17 18 18
Construction 11 12 12 13
Services 52 53 53 53
Employment in Israel /
employed labour force 28 27 25 24
Investment / GDP 33 32 32 32
Investment / GNP 26 26 26 26
Savings / GNP 10 10 11 12
GDP / GNP 79 79 80 80

Trade balance / GNP -37 -36 -35 -33
Imports / private consumption 64 65 66 68
(millions of constant 1990 US$)
Merchandise trade balance -467 -508 -542 -562
Current account balance 89 95 112 146
_________________________________________________
Note: Figures may not add up due to rounding.
* Including east Jerusalem
BASELINE VARIANT SCENARIO

A. Main assumptions and qualifications

The preceding examination of the baseline scenario highlighted the untenable economic conditions that would emerge should the circumstances prevailing in 1990 continue. In particular, the baseline scenario depicted wide labour-employment, savings-investment and export-import gaps; hence the need for drastic policy reform and effective action to address problems in these areas. Under the constraints of the baseline scenario, a basic underlying assumption is that there are no opportunities for policy measures to ameliorate conditions. A variant of the baseline scenario, which allows a limited relaxation of the most restrictive aspects of the economic environment operating since 1988, produces a different set of projections. This is effected without a major modification of the basic assumptions and conditions governing the baseline scenario.

The key feature of the variant allows the economy to attain pre-1988 trends. This recovery from the slump of the 1988-1991 period (as captured by the INT dummy variable) begins in 1992. The adverse influence of the INT variable is gradually reduced for the period 1992-1995, and is assumed no longer operational as of 1996. The lifting of this constraint affects most variables in the framework, allowing the economy to gradually attain its pre-1988 levels over as many years as INT was fully active. The choice of the pace of recovery, which commences in 1992 and continues through 1995 could be of longer or shorter duration depending on developments in the actual policy environment as of 1992.

The following points summarize the variations introduced into the major assumptions affecting data and calculations in the baseline scenario, in addition to the phasing out of the INT variable.

1. The demographic component 2. The labour force component 3. The economic component B. Baseline variant scenario: main results

The results of the variant scenario are presented in tables 3/6 to 3/10 below. The impact of the gradual easing of policy constraints and disturbances in economic activity associated with the 1988-1991 period is clear in terms of higher absolute levels and growth rates in most indicators under investigation. A comparison of the variant with the baseline scenario further highlights the extent to which the latter implies totally unfavourable (and untenable) Palestinian economic performance until 2010. It also illustrates the economy's potential for favourable response to positive external stimuli, such as those implicit in the variant's assumed relaxation of the intensified restrictions of the 1988-1991 period.

However, improved growth in the absolute values of most indicators in the variant is offset by the fact that there are few notable changes (from the baseline) with regard to key features of the economy, namely: its distorted and fragile structure and sluggish performance, the poor interaction between key aggregates and the inability of the economy to break with debilitating patterns of economic activity engendered by prolonged occupation, such as the Palestinian economy's weak labour-absorption capacity. Accordingly, by the year 1996, though the economy has attained pre-1988 trends, it has meanwhile forfeited at least eight years of growth with few achievements to show. The variant represents only some prospects of quantitative improvement over the baseline. However, these prospects are little more than a 'next-to-worst' situation in so far as the Palestinian economy under this variant is assumed to remain fragmented and lacking the means for policy action, resource mobilization and effective management.31/

Thus, as compared to the baseline, the variant scenario leaves the occupied territory with greater population and labour force growth, decreased (but still high) unemployment, improved domestic output levels and growth, and boosted individual levels of income. However, this does not prevent the re-emergence of longstanding structural problems. In particular, the economy's high degree of external exposure and import dependency, and the inadequate and inequitable terms and conditions under which its external trading activities are pursued, combine to engender patterns and levels of consumption which are incompatible with domestic productive capacity and income. By the same token, the variant scenario exhibits wider savings-investment and export-import gaps than those depicted under the baseline, which means that the economy remains unable to boost domestic production, increase exports, rationalize growth in imports and raise the level of savings. These developments combined render the results of the variant scenario, although less harsh, as unsatisfactory as those portrayed under the baseline scenario.

To sum up, according to the variant scenario:
Table 3/6. BASELINE VARIANT SCENARIO: MAIN AGGREGATES, 1990-2010


1990 1995 2000 2005 2010
___________________________________________

WEST BANK *
(thousands)

Population 933 1116 1312 1525 1746
Labour force 201 246 304 377 460
Total domestic employed 116 146 173 198 229
Employed in Israel 65 45 45 45 45

(millions of constant 1990 US$)

Total investment 295 389 486 570 686
Gross domestic product (GDP) 1002 1454 1794 2161 2619
Net factor income 354 220 237 257 278
Gross national product (GNP) 1356 1674 2031 2418 2897
Net transfers 55 67 79 92 105
Gross disposable income 1411 1741 2110 2510 3002
Merchandise trade balance -242 -286 -342 -388 -441
Current account balance 166 1 -26 -39 -58

(constant 1990 US$)

Private consumption
per capita 1008 1176 1227 1258 1315
GDP p.c. 1073 1303 1375 1417 1500
GNP p.c. 1452 1500 1548 1586 1660


GAZA STRIP (thousands)

Population 613 740 885 1051 1228
Labour force 113 141 178 222 273
Total domestic employed 59 90 110 126 144
Employed in Israel 40 30 30 30 30

(millions of constant 1990 US$)

Total investment 155 282 340 392 449
Gross domestic product (GDP) 300 721 894 1049 1217
Net factor income 194 215 239 259 279
Gross national product (GNP) 494 936 1133 1308 1496
Net transfers 94 112 134 159 185
Gross disposable income 588 1048 1267 1467 1681
Merchandise trade balance -214 -314 -403 -478 -557
Current account balance 74 13 -30 -61 -92

(constant 1990 US$)

Private consumption
per capita 568 945 1007 1007 1007
GDP p.c. 489 974 1009 998 991
GNP p.c. 806 1265 1280 1244 1218
__________________________________________

Note: Figures may not add up due to rounding.
* Excluding east Jerusalem
Table 3/7. BASELINE VARIANT SCENARIO: SELECTED INDICATORS, 1995-2010
(ratios in per cent)


1995 2000 2005 2010
__________________________________
WEST BANK*

Unemployed / labour force 22 28 35 40
Employment shares (domestic)
Agriculture 24 22 21 19
Industry 18 18 18 18
Construction 13 14 14 15
Services 45 46 47 48
Employed in Israel/
employed labour force 24 21 19 16
Savings / GNP 9 7 7 7
Investment / GDP 27 27 26 26
Investment / GNP 23 23 23 24
GDP / GNP 87 88 89 91
Trade balance / GNP -28 -28 -27 -26
Imports / private consumption 57 57 58 58


GAZA STRIP

Unemployed / labour force 15 21 30 36
Employment shares (domestic)
Agriculture 14 13 13 12
Industry 19 19 20 20
Construction 10 11 11 12
Services 57 57 56 56
Employed in Israel /
employed labour force 25 21 19 17

Savings / GNP 6 2 -1 -3
Investment / GDP 39 38 37 37
Investment / GNP 30 30 30 30
GDP / GNP 77 79 80 81
Trade balance / GNP -47 -50 -51 -52
Imports / private consumption 88 86 85 85
_________________________________
Note: Figures may not add up due to rounding.
* Excluding east Jerusalem
Table 3/8. BASELINE VARIANT SCENARIO: GROWTH RATES OF MAIN AGGREGATES, 1990-2010
(compound annual growth rates of data in constant 1990 US$)

1991-1995 1996-2000 2001-2005 2006-2010
______________________________________________
WEST BANK*

Population 3.6 3.3 3.1 2.7
Labour force 4.1 4.3 4.4 4.0
Total domestic employed 1.5 3.3 2.8 2.9
Labour productivity 5.4 1.0 1.0 1.0
Value added in
Agriculture 0.2 2.5 2.4 2.6
Industry 10.5 4.9 4.3 4.4
Construction 14.9 5.4 4.4 4.3
Services 11.0 4.8 4.2 4.3
Gross domestic product (GDP) 7.7 4.3 3.8 3.9
Private consumption 6.9 4.2 3.6 3.7
Private investment 5.5 4.1 3.7 3.8
Government investment 9.1 4.3 3.8 3.9
Exports 16.8 5.0 5.0 5.0
Imports 8.5 4.3 3.8 3.9
Net factor income -9.1 1.5 1.6 1.6
Gross national product (GNP) 4.3 3.9 3.6 3.7
Net transfers 4.2 3.3 3.1 2.7
Gross disposable income 4.3 3.9 3.1 3.7

Private consumption p.c. 3.1 0.9 0.5 0.9
GNP p.c. 0.7 0.6 0.5 0.9


GAZA STRIP

Population 3.8 3.7 3.5 3.2
Labour force 4.5 4.7 4.6 4.2
Total domestic employed 8.9 4.0 2.9 2.6
Labour productivity 8.3 0.5 0.5 0.5
Value added in
Agriculture 7.6 1.8 1.9 1.9
Industry 23.5 5.5 3.9 3.6
Construction 17.5 4.3 3.1 2.9
Services 23.6 4.8 3.4 3.1
Gross domestic product (GDP) 19.2 4.4 3.3 3.0
Private consumption 15.0 5.0 3.5 3.2
Private investment 11.6 3.7 2.9 2.7
Government investment 20.7 4.4 3.3 3.0
Exports 56.2 3.0 3.0 3.0
Imports 15.6 4.4 3.3 3.1
Net factor income 2.0 2.2 1.6 1.6
Gross national product (GNP) 13.6 3.9 2.9 2.7
Net transfers 3.5 3.7 3.5 3.2
Gross disposable income 12.2 3.9 3.0 2.8

Private consumption p.c. 10.7 1.3 0.0 0.0
GNP p.c. 9.4 0.2 -0.6 -0.4
__________________________________________
Note: Figures may not add up due to rounding.
* Excluding east Jerusalem
Table 3/9. BASELINE VARIANT SCENARIO, 1990-2010: WEST BANK* AND GAZA STRIP
(compound annual growth rates and ratios of data in constant 1990 US$)


1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________

(compound annual growth rates)

Population 3.7 3.4 3.2 2.9
Labour force 4.3 4.5 4.5 4.1
Total domestic employed 3.9 3.6 2.8 2.8
Value added in
Agriculture 1.6 2.4 2.3 2.5
Industry 16.1 5.2 4.1 4.0
Construction 15.8 5.0 3.9 3.9
Services 7.2 3.8 3.0 2.9
Gross domestic product (GDP) 10.8 4.3 3.6 3.6
Private consumption 9.3 4.5 3.5 3.5
Private investment 7.7 3.9 3.3 3.4
Government investment 15.2 4.4 3.5 3.4
Exports 25.2 4.3 4.3 4.3
Imports 11.4 4.4 3.6 3.5
Net factor income -4.5 1.9 1.6 1.6
Gross national product (GNP) 7.1 3.9 3.3 3.4
Net transfers 3.7 3.5 3.3 3.0
Gross disposable income 6.9 3.9 3.3 3.4
Private consumption p.c. 5.4 1.0 0.3 0.6
GNP p.c. 3.3 0.5 0.1 0.4

_________________________________________________________________
1995 2000 2005 2010
)________________________________________________________________

(ratios in per cent)
Unemployed / labour force 20 26 33 39
Employment shares (domestic)
Agriculture 20 19 17 16
Industry 18 19 19 19
Construction 12 13 13 14
Services 50 50 51 51
Employed in Israel /
employed labour force 24 21 19 17
Investment / GDP 31 30 30 30
Savings / GNP 8 5 4 4
Investment / GNP 26 26 26 26
GDP / GNP 83 85 86 87
Trade balance / GNP -35 -35 -35 -35
Imports / private consumption 68 67 68 68

(millions of constant 1990 US$)

Merchandise trade balance -600 -745 -866 -997
Current account balance 14 -56 -100 -150
____________________________________________

Note: Figures may not add up due to rounding.
* Excluding east Jerusalem
Table 3/10. BASELINE VARIANT SCENARIO, 1990-2010: WEST BANK* AND GAZA STRIP
(compound annual growth rates and ratios of data in constant 1990 US$)


1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________

(compound annual growth rates)
Population 3.7 3.4 3.2 2.9
Labour force 4.3 4.4 4.5 4.1
Total domestic employed 3.5 3.5 2.8 2.8
Value added in
Agriculture 1.5 2.4 2.3 2.5
Industry 15.5 5.1 4.1 4.0
Construction 15.0 5.0 3.9 3.8
Services 12.6 4.6 3.8 3.8
Gross domestic product (GDP) 10.1 4.3 3.6 3.6
Private consumption 8.7 4.4 3.5 3.5
Private investment 7.1 3.9 3.3 3.3
Government investment 14.5 4.3 3.5 3.4
Exports 23.7 4.3 4.3 4.4
Imports 10.8 4.3 3.6 3.5
Net factor income -4.5 1.9 1.7 1.7
Gross national product (GNP) 6.8 3.9 3.3 3.4
Net transfers 3.8 3.5 3.3 3.0
Gross disposable income 6.6 3.9 3.3 3.3
Private consumption p.c. 4.8 0.9 0.3 0.6
GNP p.c. 3.0 0.5 0.1 0.5
_______________________________________

1995 2000 2005 2010
_______________________________________

(ratios in per cent)

Unemployment / labour force 20 27 34 39
Employment shares (domestic)
Agriculture 18 17 16 15
Industry 17 18 18 18
Construction 12 12 13 13
Services 52 53 53 53
Employed in Israel /
employed labour force 23 20 18 16
Investment / GDP 30 30 30 29
Savings / GNP 7 5 4 4
Investment / GNP 26 26 26 26
GDP / GNP 84 86 87 88
Trade balance / GNP -34 -35 -35 -34
Imports /
private consumption 67 66 67 67

(millions of constant 1990 US$)

Merchandise trade balance -645 -797 -924 -1062
Current account balance -7 -78 -122 -171
__________________________________________

Note: Figures may not add up due to rounding.
Table 4/1. ALTERNATIVE SCENARIO I, 1990-2010: CONSTRAINED UNEMPLOYMENT

MAIN AGGREGATES
___________________________________________

1990 1995 2000 2005 2010
___________________________________________

WB & GS * (thousands)

Population 1695 2034 2407 2820 3253
Labour force 343 423 525 653 798
Total domestic employed 219 264 399 512 640
Employed in Israel 108 78 79 80 81

(millions of constant 1990 US$)
Total investment 505 745 1349 1927 2612
Gross domestic product (GDP) 1487 2447 3860 5152 6704
Net factor income 565 449 499 546 598
Gross national product (GNP) 2052 2896 4359 5698 7301
Net transfers 158 189 1340 2502 3860
Gross disposable income 2210 3085 5699 8200 11161
Merchandise trade balance -502 -667 -1649 -2592 -3694
Current account balance 221 -28 191 456 763

(constant 1990 US$)
Private consumption p.c. 863 1114 1728 2099 2461
GDP p.c. 877 1203 1603 1827 2061
GNP p.c. 1211 1424 1811 2021 2245

SELECTED INDICATORS
_________________________________________

(ratios in per cent)
Unemployment / labour force 11 19 9 9 10
Employment shares (domestic)
Agriculture 19 18 17 16 15
Industry 15 17 18 18 18
Construction 10 12 12 13 13
Services 47 52 52 53 53
Employed in Israel /
employed labour force 33 23 17 14 11
Investment / GDP 34 30 35 37 39
Savings / GNP 18 6 -11 -20 -26
Investment / GNP 25 26 31 34 36
GDP / GNP 72 84 89 90 92
Trade balance / GNP -35 -35 -54 -63 -70
Imports / private consumption 61 67 71 74 75
_________________________________________
* Including east Jerusalem

Table 4/2. ALTERNATIVE SCENARIO I, 1990-2010: CONSTRAINED UNEMPLOYMENT

MAIN AGGREGATES AND SELECTED INDICATORS
(compound annual growth rates)
_____________________________________________

1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________

WB & GS *

Population 3.7 3.4 3.2 2.9
Labour force 4.3 4.4 4.5 4.1
Total domestic employed 3.9 8.6 5.1 4.6
Value added in
Agriculture 1.8 8.0 4.6 4.2
Industry 16.1 9.8 6.5 5.9
Construction 15.5 10.2 6.3 5.7
Services 13.0 9.9 6.2 5.6
Gross domestic product (GDP) 10.5 9.5 6.0 5.4
Private consumption 9.1 12.9 7.3 6.2
Private investment 7.4 13.1 7.5 6.4
Government investment 15.2 8.7 5.9 5.3
Exports 23.7 4.2 4.3 4.4
Imports 11.2 14.4 8.2 6.7
Net factor income -4.5 2.1 1.8 1.8
Gross national product (GNP) 7.1 8.5 5.5 5.1
Net transfers 3.8 47.9 13.3 9.1
Gross disposable income 6.9 13.1 7.6 6.4
Private consumption p.c. 5.2 9.2 4.0 3.2
GNP p.c. 3.3 4.9 2.2 2.1
_________________________________________
Table 4/3. ALTERNATIVE SCENARIO II, 1990-2010: INTENSIFYING INVESTMENT AND REDRESSING TRADE GAP

MAIN AGGREGATES
__________________________________________

1990 1995 2000 2005 2010
__________________________________________

WB & GS * (thousands)

Population 1695 2034 2407 2820 3253
Labour force 343 423 525 653 798
Total domestic employed 219 264 353 483 690
Employed in Israel 108 78 79 80 82

(millions of constant 1990 US$)
Total investment 505 745 1082 1492 2171
Gross domestic product (GDP) 1487 2447 3404 4857 7244
Net factor income 565 449 497 544 601
Gross national product (GNP) 2052 2896 3901 5402 7844
Net transfers 158 189 225 265 307
Gross disposable income 2210 3085 4126 5667 8151
Merchandise trade balance -502 -667 -887 -1049 -1242
Current account balance 221 -28 -165 -240 -334

(constant 1990 US$)
Private consumption per capita 863 1114 1268 1482 1844
GDP per capita 877 1203 1414 1722 2227
GNP per capita 1211 1424 1621 1915 2412


SELECTED INDICATORS
________________________________________

(ratios in per cent)
Unemployment / labour force 11 19 18 14 3
Employment shares (domestic)
Agriculture 19 18 17 16 15
Industry 15 17 18 18 18
Construction 10 12 12 13 13
Services 47 52 53 53 53
Employed in Israel /
employed labour force 33 23 18 14 11
Investment / GDP 34 30 32 31 30
Savings / GNP 18 6 6 7 8
Investment / GNP 25 26 28 28 28
GDP / GNP 72 84 87 90 92
Trade balance / GNP -35 -35 -35 -31 -27
Imports / private consumption 61 67 67 68 69
_________________________________________
* Including east Jerusalem
Table 4/4. ALTERNATIVE SCENARIO II, 1990-2010: INTENSIFYING INVESTMENT AND REDRESSING TRADE GAP

MAIN AGGREGATES AND SELECTED INDICATORS
(compound annual growth rates)
_____________________________________________

1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________
WB & GS*

Population 3.7 3.4 3.2 2.9
Labour force 4.3 4.4 4.5 4.1
Total domestic employed 3.9 5.9 6.5 7.4
Value added in
Agriculture 1.8 5.1 5.1 7.2
Industry 16.1 7.3 7.7 8.6
Construction 15.5 7.5 7.7 8.6
Services 13.0 7.2 7.6 8.5
Gross domestic product (GDP) 10.5 6.8 7.4 8.3
Private consumption 9.1 6.1 6.5 7.5
Private investment 7.4 7.5 6.2 7.4
Government investment 15.2 9.9 9.9 9.9
Exports 23.7 6.7 10.7 11.3
Imports 11.2 6.3 6.8 7.7
Net factor income -4.5 2.0 1.9 2.0
Gross national product (GNP) 7.1 6.1 6.7 7.8
Net transfers 3.8 3.5 3.3 3.0
Gross disposable income 6.9 6.0 6.6 7.5
Private consumption p.c. 5.2 2.6 3.2 4.5
GNP p.c. 3.3 2.6 3.4 4.7
_________________________________________
Table 4/5. ALTERNATIVE SCENARIO III, 1990-2010: INTENSIFYING INVESTMENT AND NARROWING THE TRADE GAP WITH EXTERNAL TRANSFERS

MAIN AGGREGATES
___________________________________________

1990 1995 2000 2005 2010
___________________________________________

WB & GS*
(thousands)
Population 1695 2034 2407 2820 3253
Labour force 343 423 525 653 798
Total domestic employed 219 264 399 512 698
Employed in Israel 108 78 79 80 82

(millions of constant 1990 US$)
Total investment 505 745 1318 1584 2109
Gross domestic product (GDP) 1487 2447 3860 5152 7301
Net factor income 565 449 499 546 601
Gross national product (GNP) 2052 2896 4359 5698 7901
Net transfers 158 189 855 562 307
Gross disposable income 2210 3085 5214 6260 8208
Merchandise trade balance -502 -667 -1309 -1206 -1153
Current account balance 221 -28 46 -98 -245

(constant 1990 US$)
Private consumption p.c. 863 1114 1594 1635 1854
GDP p.c. 877 1203 1603 1827 2244
GNP p.c. 1211 1424 1811 2020 2429


SELECTED INDICATORS
__________________________________________

(ratios in per cent)
Unemployment / labour force 11 19 9 9 2
Employment shares (domestic)
Agriculture 19 18 17 16 15
Industry 15 17 18 18 19
Construction 10 12 12 13 13
Services 47 52 52 53 53
Employed in Israel /
employed labour force 33 23 17 14 11
Investment / GDP 34 30 34 31 29
Savings / GNP 18 6 -2 4 8
Investment / GNP 26 26 30 28 27
GDP / GNP 72 84 89 90 92
Trade balance / GNP -35 -35 -44 -33 -26
Imports / private consumption 61 67 68 68 69
__________________________________________

* Including east Jerusalem
Table 4/6. ALTERNATIVE SCENARIO III, 1990-2010: INTENSIFYING INVESTMENT AND REDRESSING TRADE GAP WITH EXTERNAL TRANSFERS


MAIN AGGREGATES AND SELECTED INDICATORS
(compound annual growth rates)
_____________________________________________

1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________


WB & GS*

Population 3.7 3.4 3.2 2.9
Labour force 4.3 4.4 4.5 4.1
Total domestic employed 3.9 8.6 5.1 6.4
Value added in
Agriculture 1.8 8.0 4.6 6.0
Industry 16.1 9.8 6.5 7.8
Construction 15.5 10.2 6.3 7.5
Services 13.0 9.9 6.2 7.4
Gross domestic product (GDP) 10.5 9.5 6.0 7.2
Private consumption 9.4 11.1 3.7 5.5
Private investment 7.4 12.5 3.2 5.6
Government investment 15.2 8.3 8.4 8.4
Exports 23.7 7.1 11.6 11.4
Imports 11.2 11.7 3.6 5.8
Net factor income -4.5 2.1 1.8 1.9
Gross national product (GNP) 7.1 8.5 5.5 6.8
Net transfers 3.8 35.2 -8.1 -11.4
Gross disposable income 6.9 11.1 3.7 5.6
Private consumption p.c. 5.2 7.4 0.5 2.5
GNP p.c. 3.3 4.9 2.2 3.8
________________________________________
Table 5/1. ALTERNATIVE SCENARIO IV, 1990-2010: ABSORPTION OF RETURNING POPULATION WITHOUT EXTERNAL TRANSFERS
(lower population estimates)

MAIN AGGREGATES
__________________________________________

1990 1995 2000 2005 2010
__________________________________________

WB & GS* (thousands)

Population 1695 2034 2793 3677 4636
Labour force 343 423 506 845 1127
Total domestic employed 219 264 408 636 1007
Employed in Israel 108 78 80 82 87

(millions of constant 1990 US$)
Total investment 505 745 1325 1930 3129
Gross domestic product (GDP) 1487 2447 3940 6364 10537
Net factor income 565 449 499 552 618
Gross national product (GNP) 2052 2896 4440 6916 11154
Net transfers 158 189 261 345 437
Gross disposable income 2210 3085 4701 7262 11592
Merchandise trade balance -502 -667 -1004 -1091 -1261
Current account balance 221 -28 -243 -194 -206

(constant 1990 US$)
Private consumption p.c. 863 1114 1252 1459 1838
GDP p.c. 877 1203 1411 1731 2273
GNP p.c. 1211 1424 1590 1881 2406

SELECTED INDICATORS
_________________________________________

(ratios in per cent)
Unemployment / labour force 11 19 20 15 3
Employment shares (domestic)
Agriculture 19 18 17 16 15
Industry 15 17 18 18 19
Construction 10 12 12 13 13
Services 47 52 52 53 53
Employed in Israel /
employed labour force 35 23 16 11 8
Investment / GDP 34 30 34 30 30
Savings / GNP 18 6 7 9 11
Investment / GNP 25 26 30 28 28
GDP / GNP 72 84 89 92 94
Trade balance / GNP -35 -35 -34 -30 -24
Imports / private consumption 61 67 67 68 69
_________________________________________

* Including east Jerusalem
Table 5/2. ALTERNATIVE SCENARIO IV, 1990-2010: ABSORPTION OF
RETURNING POPULATION WITHOUT EXTERNAL TRANSFERS
(lower population estimates)



MAIN AGGREGATES AND SELECTED INDICATORS
(compound annual growth rates)
______________________________________________

1991-1995 1996-2000 2001-2005 2006-2010
______________________________________________

WB & GS*

Population 3.7 6.5 5.7 4.7
Labour force 4.3 7.5 6.9 6.0
Total domestic employed 6.1 9.1 9.2 9.7
Value added in
Agriculture 1.8 8.3 8.8 9.4
Industry 16.3 10.5 10.5 11.1
Construction 15.7 10.7 10.4 10.9
Services 13.5 10.3 10.3 10.8
Gross domestic product (GDP) 10.8 10.0 10.0 10.6
Private consumption 9.4 9.1 8.9 9.7
Private investment 7.6 12.1 7.1 9.7
Government investment 15.4 12.9 12.9 13.0
Exports 24.1 9.9 17.0 14.0
Imports 11.5 9.1 9.3 10.1
Net factor income -4.4 2.1 2.0 2.3
Gross national product (GNP) 7.3 8.9 9.3 10.0
Net transfers 3.8 6.6 5.8 4.8
Gross disposable income 7.1 8.8 9.1 9.8
Private consumption p.c. 5.5 2.4 3.1 4.7
GNP p.c. 3.5 2.2 3.4 5.1
________________________________________
* Including east Jerusalem

Table 5/3. ALTERNATIVE SCENARIO IV, 1990-2010: ABSORPTION OF
RETURNING POPULATION WITHOUT EXTERNAL TRANSFERS
(higher population estimates)

MAIN AGGREGATES
__________________________________________

1990 1995 2000 2005 2010
__________________________________________

WB & GS*
(thousands)
Population 1695 2034 3030 4333 5846
Labour force 343 423 656 991 1415
Total domestic employed 219 264 441 747 1285
Employed in Israel 108 78 80 82 87

(millions of constant 1990 US$)
Total investment 505 745 1442 2286 3914
Gross domestic product (GDP) 1487 2447 4265 7519 13475
Net factor income 565 449 501 558 634
Gross national product (GNP) 2052 2896 4767 8078 14110
Net transfers 158 189 283 404 547
Gross disposable income 2210 3085 5049 8482 14656
Merchandise trade balance -502 -667 -1109 -1315 -1617
Current account balance 221 -28 -325 -352 -436

(constant 1990 US$)
Private consumption p.c. 863 1114 1247 1451 1849
GDP p.c. 877 1203 1408 1735 2305
GNP p.c. 1211 1424 1573 1864 2414


SELECTED INDICATORS
_________________________________________

(ratios in per cent)
Unemployment / labour force 11 19 21 16 3
Employment shares (domestic)
Agriculture 19 18 17 16 15
Industry 15 17 18 18 19
Construction 10 12 12 13 13
Services 47 52 52 53 53
Employed in Israel /
employed labour force 35 23 15 10 6
Investment / GDP 34 30 34 30 29
Savings / GNP 18 6 6 8 10
Investment / GNP 25 26 30 28 28
GDP / GNP 72 84 89 93 96
Trade balance / GNP -35 -35 -39 -28 -23
Imports / private consumption 61 67 66 67 69
_________________________________________
* Including east Jerusalem
Table 5/4. ALTERNATIVE SCENARIO IV, 1990-2010: ABSORPTION OF RETURNING POPULATION WITHOUT EXTERNAL TRANSFERS
(higher population estimates)



MAIN AGGREGATES AND SELECTED INDICATORS
(compound annual growth rates)
_____________________________________________

1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________

WB & GS*

Population 3.7 8.3 7.4 6.2
Labour force 4.3 9.2 8.6 7.4
Total domestic employed 6.1 10.8 11.1 11.5
Value added in
Agriculture 1.8 10.1 10.7 11.2
Industry 16.3 12.2 12.6 12.8
Construction 15.7 12.4 12.4 12.6
Services 13.5 12.1 12.2 12.6
Gross domestic product (GDP) 10.8 11.8 12.0 12.4
Private consumption 9.4 10.8 10.8 11.4
Private investment 7.6 14.2 9.1 11.0
Government investment 15.4 13.9 14.0 14.0
Exports 24.1 10.5 19.4 16.2
Imports 11.5 10.7 11.1 11.9
Net factor income -4.4 2.2 2.2 2.6
Gross national product (GNP) 7.3 10.5 11.1 11.8
Net transfers 3.8 8.3 7.4 6.2
Gross disposable income 7.1 10.4 10.9 11.6
Private consumption p.c. 5.5 2.3 3.1 5.0
GNP p.c. 3.5 2.0 3.5 5.3
____________________________________________
Table 5/5. ALTERNATIVE SCENARIO V, 1990-2010: ABSORPTION OF RETURNING POPULATION WITH EXTERNAL TRANSFERS
(lower population estimates)

MAIN AGGREGATES
__________________________________________

1990 1995 2000 2005 2010
__________________________________________

WB & GS*
(thousands)
Population 1695 2034 2793 3677 4636
Labour force 343 423 606 845 1127
Total domestic employed 219 264 470 681 1007
Employed in Israel 108 78 80 83 87

(millions of constant 1990 US$)
Total investment 505 745 1693 2241 3129
Gross domestic product (GDP) 1487 2447 4553 6857 10537
Net factor income 565 449 503 555 618
Gross national product (GNP) 2052 2896 5055 7112 11154
Net transfers 158 189 1357 1297 437
Gross disposable income 2210 3085 6412 8709 11592
Merchandise trade balance -502 -667 -1799 -1722 -1261
Current account balance 221 -28 127 130 -206

(constant 1990 US$)
Private consumption p.c. 863 1114 1685 1735 1838
GDP p.c. 877 1203 1630 1865 2273
GNP p.c. 1211 1424 1810 2016 2406

SELECTED INDICATORS
_________________________________________

(ratios in per cent)
Unemployment / labour force 11 19 9 10 3
Employment shares (domestic)
Agriculture 21 18 17 16 15
Industry 16 17 18 18 19
Construction 11 12 12 13 13
Services 51 52 52 53 53
Employed in Israel /
employed labour force 35 23 15 11 8
Investment / GDP 34 30 37 33 30
Savings / GNP 18 6 -6 1 11
Investment / GNP 25 26 33 30 28
GDP / GNP 72 84 90 93 94
Trade balance / GNP -35 -35 -49 -40 -22
Imports / private consumption 61 67 70 70 69
_________________________________________
* Including east Jerusalem
Table 5/6. ALTERNATIVE SCENARIO V, 1990-2010: ABSORPTION OF RETURNING POPULATION WITH EXTERNAL TRANSFERS
(lower population estimates)


MAIN AGGREGATES AND SELECTED INDICATORS
(compound annual growth rates)
_____________________________________________

1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________

WB & GS*

Population 3.7 6.5 5.7 4.7
Labour force 4.3 7.5 6.9 6.0
Total domestic employed 6.1 12.2 7.7 8.1
Value added in
Agriculture 1.8 11.7 7.2 7.8
Industry 16.3 13.5 9.2 9.5
Construction 15.7 13.9 8.9 9.2
Services 13.5 13.5 8.8 9.2
Gross domestic product (GDP) 10.8 13.2 8.5 9.0
Private consumption 9.4 15.7 6.3 6.0
Private investment 7.6 18.4 5.0 6.0
Government investment 15.4 12.9 13.0 13.0
Exports 24.1 9.7 17.1 14.0
Imports 11.5 16.9 6.3 5.7
Net factor income -4.4 2.3 2.0 2.2
Gross national product (GNP) 7.3 11.8 8.0 8.5
Net transfers 3.8 48.3 -0.9 -19.6
Gross disposable income 7.1 15.8 6.3 5.9
Private consumption p.c. 5.5 8.6 0.6 6.0
GNP p.c. 3.5 4.9 2.2 3.6
_____________________________________________
* Including east Jerusalem
Table 5/7. ALTERNATIVE SCENARIO V, 1990-2010: ABSORPTION OF RETURNING POPULATION WITH EXTERNAL TRANSFERS
(higher population estimates)

MAIN AGGREGATES
__________________________________________

1990 1995 2000 2005 2010
__________________________________________

WB & GS*
(thousands)
Population 1695 2034 3030 4333 5846
Labour force 343 423 656 991 1415
Total domestic employed 219 264 514 811 1285
Employed in Israel 108 78 80 83 87

(millions of constant 1990 US$)
Total investment 505 745 1885 2679 3914
Gross domestic product (GDP) 1487 2447 4982 8174 13475
Net factor income 565 449 505 562 634
Gross national product (GNP) 2052 2896 5487 8736 14110
Net transfers 158 189 1623 1579 547
Gross disposable income 2210 3085 7109 10315 14656
Merchandise trade balance -502 -667 -1999 -2096 -1617
Current account balance 221 -28 129 46 -436

(constant 1990 US$)
Private consumption p.c. 863 1114 1724 1749 1849
GDP p.c. 877 1203 1644 1886 2305
GNP p.c. 1211 1424 1811 2016 2414


SELECTED INDICATORS
_________________________________________

(ratios in per cent)
Unemployment / labour force 11 19 9 10 3
Employment shares (domestic)
Agriculture 21 18 17 16 15
Industry 16 17 18 18 19
Construction 11 12 12 13 13
Services 51 52 52 53 53
Employed in Israel /
employed labour force 35 23 14 9 6
Investment / GDP 34 30 38 33 29
Savings / GNP 18 6 -8 0 10
Investment / GNP 25 26 34 31 28
GDP / GNP 72 84 91 94 96
Trade balance / GNP -35 -35 -57 -37 -23
Imports / private consumption 61 67 70 70 69
_________________________________________
* Including east Jerusalem
Table 5/8. ALTERNATIVE SCENARIO V, 1990-2010: ABSORPTION OF RETURNING POPULATION WITH EXTERNAL TRANSFERS
(higher population estimates)


MAIN AGGREGATES AND SELECTED INDICATORS
(compound annual growth rates)
_____________________________________________

1991-1995 1996-2000 2001-2005 2006-2010
_____________________________________________

WB & GS*

Population 3.7 8.3 7.4 6.2
Labour force 4.3 9.2 8.6 7.4
Total domestic employed 6.1 14.3 9.5 9.6
Value added in
Agriculture 1.8 13.7 9.1 9.3
Industry 16.3 15.6 11.0 11.0
Construction 15.7 16.0 10.8 10.8
Services 13.5 15.6 10.7 10.7
Gross domestic product (GDP) 10.8 15.3 10.4 10.5
Private consumption 9.4 18.2 7.7 7.4
Private investment 7.6 21.1 6.6 7.0
Government investment 15.4 13.8 14.0 14.0
Exports 24.1 10.5 19.4 16.2
Imports 11.5 19.5 7.5 7.1
Net factor income -4.4 2.4 2.2 2.5
Gross national product (GNP) 7.3 13.6 9.7 10.1
Net transfers 3.8 53.7 -0.5 -19.1
Gross disposable income 7.1 18.2 7.7 7.3
Private consumption p.c. 5.5 9.1 0.3 1.1
GNP p.c. 3.5 4.9 2.2 3.7
_____________________________________________
Table 6/2
WAGE COMPARISONS FOR PALESTINIAN WORKERS EMPLOYED IN ISRAEL AND IN THE OCCUPIED TERRITORY, 1972-1990



1972 1987 1990
____________________________


Palestinian workers in Israel

1. Total earnings (millions of 1990 US$)* 200.8 732.5 546.0
2. Number (thousands) 52.4 108.9 105.0
3. Average annual earnings (1990$/worker) 3,832.0 6,726.0 5,200.0


Palestinian workers in the occupied territory

4. Total earnings (millions of 1990 US$)** 373.0 1254.9 868.4
5. Number (thousands) 136.4 168.9 175.0
6. Average annual earnings (1990$/worker) 2,460.0 6,612.0 4,416.0


Wage ratio/differential

(#3/#6) 1.558 1.017 1.177
_____________________________________________________________________________________

Source: Tables 1/1 - 1/3
* i.e. net factor income from abroad. 1/ The UNCTAD secretariat has undertaken regular monitoring and investigation of the policies and practices of the Israeli occupation authorities, affecting the Palestinian economy (Gaza Strip and West Bank, including East Jerusalem). Detailed information may be found in: "Recent economic developments in the occupied Palestinian territory" TD/B/1065(1985), TD/B/1102(1986), TD/B/1142(1987), TD/B/1183(1988), TD/B/1221(1989), TD/B/1266(19-90), TD/B/1305(-1991), and TD/B/39(1)/4(1992).
2/ For a list of the specific field studies commissioned by the UNCTAD secretariat within the context of the intersectoral project, see annex 1 of "Report of a meeting of experts on prospects for sustained development of the Palestinian economy in the West Bank and Gaza Strip" (UNCTAD/DSD/SEU/2).
3/ Ibid., paras. 15-199.
4/ Ibid., paras. 200-220.
5/ For a brief discussion of alternate estimates of economic performance in 1991 and 1992, see "Developments in the economy of the occupied Palestinian territory" (TD/B/40(1)/8).
6/ A set of tables covering the economic, demographic, and labour force variables used in this study, and as stored in the UNCTAD secretariat Economic Time Series Data Bank has been published provides further details about the sources, definitions and procedures used. See "Selected national accounts series of the occupied Palestinian territory, 1967-1987" (UNCTAD/RDP/SEU/6) and "Selected series on the balance of payments, foreign trade, population, labour force and employment of the occupied Palestinian territory, 1968-1987" (UNCTAD/DSD/SEU/1).
7/ The scope of the substantive areas and the length of the period covered did not permit generating meaningful and compatible time series for east Jerusalem. Should the series for the historical period eventually be made available on east Jerusalem, the computations and analyses covering both the historical period and the scenario projections for the West Bank as a whole could be accordingly adjusted.
8/ The treatment of data for this period is discussed separately in part one, chapter III of the technical supplement.
9/ Israel, Central Bureau of Statistics, 20 September 1993 (unpublished comments).
10/ See M. Benvenisti and S. Khayat The West Bank and Gaza Atlas, (Jerusalem, West Bank Data Base Project, 1988), pp.29-30; G. Kosseifi, "Forced Migration of the Palestinians from the West Bank and Gaza Strip, 1967-1983", Population Bulletin of ESCWA, No. 27, December 1985, pp. 73-108. A more recent study has estimated the missing population to be as much as one third more than the de facto population accounted for in CBS data - see Centre for Engineering and Planning, Masterplanning the State of Palestine: suggested guidelines for comprehensive development, preliminary presentation, (Ramallah, CEP, March 1992), pp. 18-19.
11/ For more details, see part one, chapter I of the technical supplement.
12/ The precise derivation of this data is explored in part one, chapter I of the technical supplement. The Brass technique may be consulted in detail in: United Nations, Manual X: Indirect Techniques for Demographic Estimation, Population Studies, No. 81 (United Nations publication, Sales No. E.83.XIII.2), 1983.
13/ These rates and their methods of estimation are presented in part one, chapter I of the technical supplement.
14/ The method followed to estimate emigration is described in part two, chapter I of the technical supplement.
15/ See part one, chapter II of the technical supplement for further details.
16/ For data on unemployment in the period 1988-1991, and a discussion of aspects of official Israeli data series on the subject, see, e.g.: the annual report published by the International Labour Organisation, "Report of the Director-General, Appendices, (Vol.2)" Geneva; and "Recent economic developments..." TD/B/1305, paras. 55-56.
17/ Given their importance, these problems are detailed in part one, chapter III of the technical supplement.
18/ The consolidated National accounts of Judea, Samaria and the Gaza area, 1968-1986, Special Series No. 818 (Jerusalem, CBS, 1988) recently published by CBS could not be obtained at the time of preparing this study.
19/ A full and detailed presentation of the methods followed and of the resulting CPI and DEF series are available in part one, chapter III of the technical supplement.
20/ See footnote 1 above.
21/ A detailed analytical presentation of the framework itself and of its technical aspects is contained in part two of the technical supplement.
22/ Given the continued weakness of family planning programmes and that the levels for the West Bank and Gaza Strip have historically remained above the regional average, there was no real basis for assuming a faster rate of decline.
23/ Part two, chapter I of the technical supplement details the structure and functioning of the demographic component of the quantitative framework.
24/ Part two, chapter II of the technical supplement details the equations and the techniques used for the functioning of the labour force component of the quantitative framework.
25/ Given data limitations, it was not possible to relate or express investment behaviour to other factors and sectors in the economy. Also, the relatively volatile nature of GNDI and the insufficient correspondence between the direction of change in GNDI and IP means that change in GNDI is a less useful indicator to regress against IP than the level of GNDI.
26/ Available data do not allow the categorization of imports according to consumption and capital goods. This prevents any useful disaggregation of the import function.
27/ Full details about the logic of this block and of the selection process that resulted in the choice of the specific equations appear in part two, chapter III of the technical supplement.
28/ Full documentation on the historical data, the calculations, and the methodology followed in the exercise are retained in part two, chapter IV, of the technical supplement.
29/ World Population Prospects 1990, United Nations, New York, 1991, pp.176-181, Table 41.
30/ This is the historical average obtained by dividing total investment by change in GDP, excluding negative and inordinately high values. It is slightly lower than the values of ICOR as quoted by the Jordan Ministry of Planning in: Five year programme for economic and social development in the occupied territory (Amman, The Ministry, 1986). According to this document, the historical value of ICOR equalled 5, but an ICOR of 4 was chosen for programming purposes. On the other hand, Dr. A. Kubursi utilized an ICOR of 3 in his study entitled "The economic viability of an independent Palestinian state" (prepared for the International Conference on the Question of Palestine, Geneva, August-September 1983, p.12).
31/ Unless otherwise specified, the following references to and data for the West Bank exclude east Jerusalem, while references to the occupied territory as a whole include east Jerusalem.
32/ In the IMF's World Economic Outlook October 1991 (table A.53, p. 161), growth in export volume for the Middle East between 1993 and 1996 is projected at 15 per cent per annum, while import volume is projected at 8 per cent per annum.
33/ For further details of the techniques employed in building the Alternative Scenarios, see chapter V of the technical supplement.
34/ For example, the framework sheds little light on the composition of the components of demand under examination. Nor does it reflect budgetary or fiscal considerations, the effects of specific sectoral policies or the impact of major changes in their operating conditions.
35/ The equation used and which appears in table TS2/5 of the technical supplement is the following:
CP(t) = 32.33 + 0.641 NDY(t) + 89.03 INT.
36/ Trial runs were conducted using ICORs of 3, 5, 7 and 9. The value of 3 exaggerated the impact of the special investment programme, while the higher values gave too weak results.
37/ It should be stressed that the higher savings levels achieved under the baseline scenario and its variant were only possible owing to the relatively poor performance of income and consumption.
38/ The equation used and which appears in table TS2/5 of the technical supplement is the following: 39/ See United Nations, "International Development Strategy for the Fourth United Nations Development Decade", (1990).
40/ Relevant United Nations resolutions pertaining to this issue are General Assembly resolution 194 (III) of 1948 and Security Council resolutions 237 and 242 of 1967 and 338 of 1973.
41/ One relevant United Nations General Assembly resolution is GA 38/144 of 19 December 1983 which, inter alia, emphasized "the right of the Palestinian people whose territories are under the Israeli occupation to full and effective permanent sovereignty and control over their natural and all other resources, wealth and economic activities".
42/ One investigation of Palestinian population worldwide may be found in United States Bureau of Census, "Palestinian projections for 16 countries/areas of the world, 1990-2010" (1991). Figures for UNRWA registered refugees are from "Map of UNRWA's Area of Operations", 30 June 1990 (UNRWA, Vienna, 1990). It should be observed, for example, that at least 300,000 Palestinians who had previously resided in Kuwait left there by late 1991, mostly for Jordan. They included elements from each of the population categories above. In different circumstances, it is likely that many of these people would return to the Palestinian territory.
43/ See UNESCWA, "The return of Jordanian/Palestinian nationals from Kuwait: economic and social implications for Jordan" (Amman, UNESCWA, 1991). See UNCTAD, "The Palestinian financial sector under Israeli occupation" (UNCTAD/ST/SEU/3/Rev.1), p. 2.
44/ The equations used for the Gaza Strip and the West Bank are respectively the following: 45/ UNCTAD, Handbook of International Trade and Development Statistics, (New York, 1990).
46/ In the preparation of this part, the secretariat was assisted by Professor Fadle Naqib, University of Waterloo, Ontario, Canada, and Professor Jeffrey Nugent, University of Southern California, Los Angeles, California, United States of America.
47/ The framework presented here is a modified version of the two-gap Harrod-Domar model types. See R.I. McKinnon "Foreign exchange constraints in economic development and efficient aid allocation", Economic Journal, Vol. 74, pp. 388-409 and E.L. Bacha, "Growth with limited supplies of foreign exchange: A reappraisal of the two-gap model", chapter 13 in Economic Structure and Performance, Academic Press Inc., 1984.
48/ These two features could be captured by the following equations: 49/ The following parameters are calculated from the accounts of 1987: s = -0.256, f = n = 0.9, a = 0.39, and b = 0.07. Assuming that _ = 0.4 and u = 1, g is calculated to be 6 per cent.
50/ The share of industry was 6 per cent in 1980 while it was 7 per cent in 1970 and 9 per cent in 1935. The share of agriculture was 29 per cent in 1970, 24 per cent in 1980 and 28 per cent in 1935. See Jacob Metzer, "The Arab economies in mandatory Palestine and in the administered territories", Economic Development and Cultural Change, 1992, pp. 844-865.
51/ Note that the ratio C/Y is not just increasing it is also greater than 1.
52/ According to equation (11) if NFI and NT are cut by half, and dissaving is also cut by half then with u = 0.85 the growth rate drops to 2.5 per cent.
53/ According to the equation:
54/ Hence domestic saving will be: 55/ Accordingly, NFI is structured as: 56/ Saving from this source is _NT.
57/ Substituting equations (3) and (2) into (1) and rearranging terms yields: 58/ In all simulations it is assumed that s = f = µ.
59/ What makes the continuing high rate of population growth especially remarkable is that it has occurred despite rapidly rising income and relatively high educational attainment levels, both factors which are normally associated with falling fertility and population growth rates.
60/ Since high dependence rates have a deleterious effect on savings rates [Nathaniel H. Leff, 1969, "Dependency rates and savings rates," American Economic Review 59 (December), 886-896], the very high dependence rate for the Palestinian economy contributes substantially to its low (indeed negative) rate of domestic saving.
61/ Lewis, W. Arthur, 1954, "Economic development with unlimited supplies of labour," Manchester School of Economic and Social Studies, 22 (May), pp. 139-191.
62/ For a critical review of these contributions, see Mark R. Rosenzweig, "Labour markets in low-income countries," H.B. Chenery and T.N. Srinivasan, eds. Handbook of Development Economics, (Amsterdam: North-Holland, 1988) pp. 712-762.
63/ For evidence see, George T. Abed, (ed.), The Palestinian economy: studies in development under prolonged occupation, (London, Routledge, 1988), pp. 1-13, and the studies therein.
64/ The assumptions behind these calculations are identified in the table itself.
65/ The policy of Jordan to keep agricultural wage rates low with heavy reliance on surplus labour from Egypt at wage rates well below those prevailing in either Israel or the occupied territory has meant that Jordan has not become an important alternative source of employment for Palestinian workers.
66/ As shown in table 1/2, exports from the West Bank fell by no less than 21 per cent per annum and those from the Gaza Strip by 54 per cent per annum between 1988 and 1990.
67/ For a broad review of the nature and complexity of such challenges, see Abed, (ed.) "The Palestinian economy...", op. cit.
68/ Besides those infrastructural needs identified above, and in the consultation studies lying behind this, George T. Abed provides an independent calculation of needs and attempts an overall cost estimate in The economic viability of a Palestinian state, (Washington, D.C, Institute for Palestine Studies, 1990). Prominent among the areas of need are housing, communications, education, electricity, irrigation and water, and health. As Israeli observers also have pointed out, much of the infrastructure which does exist is better suited to the needs of the occupying power than to those of the Palestinian people. See, e.g., M. Benvenisti and S. Khayat, "The West Bank..." op. cit., pp. 34-36.
69/ One of the bases on which to found such attempts would be to take advantage of the many Palestinian professionals and engineers who have returned from the Gulf and who are currently either unemployed or underemployed, by encouraging them to start new industrial and service enterprises in the occupied territories.
70/ Abed, "The economic viability..." op. cit.
71/ Taxes on imports, however, may be justified in certain situations, e.g. when they are useful for offsetting other distortions or are especially low in transaction costs or can serve the interest of distributional equity.


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