How the Oslo Accords Stunted Palestinian Economic Growth
September 18 2018

Despite its expiration nineteen years ago, the Paris Protocol has locked the Palestinian economy in a crippling structural dependency on Israel.

Twenty-five years ago this month, Palestinians signed the Oslo Accords, which marked the start of the defunct peace process. A few months later, they signed the Paris Protocol, which formalized economic relations with Israel for an interim period of five years. At the time, Palestinians were aspiring to achieve independence, sovereignty, statehood, and economic prosperity. Some of them even went so far as to imagine following Taiwan and Singapore as models for Palestinian growth and development.

Fast forward to 2018: Contrary to achieving these goals, the last twenty-five years have been characterized by entrenched colonial domination, increasing dependency on international aid, and growing structures of political and socio-economic inequality.


Despite its expiration nineteen years ago, the Paris Protocol still represents the main economic framework that governs the Occupied Palestinian Territories (OPT). The primary objective of the Protocol was “to lay the groundwork for strengthening the economic base of the Palestinian side and for exercising its right of economic decision-making in accordance with its own development plan and priorities.” However, this was in stark contrast with the real aim of Israel: deepening colonial structures of control and denying Palestinian independence and self-determination.

[From the Journal of Palestine Studies | De-development Revisited: Palestinian Economy and Society Since Oslo]

For example, in the area of trade, a one-sided customs union relationship was formalized in which the trade policy of Israel was imposed on Palestinians, although Israel’s GDP was twenty-four times Palestinian GDP in 2017 (in current USD). In other words, not only did Palestinians remain dependent on Israel’s trade policy as in the pre-Oslo period, but they also had to employ the tariff structure that suited an economy stronger than theirs, and not the one needed to rejuvenate a long-neglected economy. Likewise, despite the establishment of the Palestinian Monetary Authority (PMA), it was granted very limited independence, since the creation of a Palestinian currency, which symbolizes sovereignty, was deferred. The PMA was thus unable to adopt macroeconomic or exchange-rate policies and was made dependent on the Bank of Israel’s monetary policy.

Furthermore, while the two-state solution was at the heart of the accords, the economic choices made in the Protocol were shaped by Israel’s “no-state solution.” For instance, the clearance revenue system, based on which Israel collects fiscal revenues and then transfers them to the Palestinian Authority (PA), neither allows Palestinians to integrate into the Israeli economy nor does it allow them to control their borders and separate from Israel.

Similarly, the inherent idea in the Oslo Accords—that the Gaza Strip and the West Bank, including East Jerusalem, constitute a single legal and territorial unit—has been nullified by Israel’s creation of mere Palestinian enclaves. Since the early 1990s, Israel’s closure regime and system of movement restrictions, the expansion of illegal settlements, and the administrative division of the West Bank into Areas A, B, and C, have all led to the fragmentation of the OPT geographically and economically.

A new economic geography of fragmentation and marginalization thus emerged. While the OPT is commonly viewed as a periphery relative to the core economy of Israel, the post-Oslo period saw the development of different sub-peripheries within the OPT itself, comprised of the Gaza Strip; East Jerusalem; Southern West Bank; Central West Bank; Northern West Bank; and the Arab economy in Israel. This geography of fragmentation has obstructed all the essential elements for building an independent and prosperous state.

[From the Journal of Palestine Studies | Privatizing the Occupation: The Political Economy of an Oslo Development Project]

Therefore, far from the stated objective of “strengthening the economic base of the Palestinian side” and allowing it to exercise “its right of economic decision-making,” the Paris Protocol has locked the Palestinian economy in a crippling structural dependency on Israel. Meanwhile, Israel has deepened its colonial domination while maintaining its control over land, water, external borders, Palestinian fiscal revenues, and labor movement. The “Palestinian economies” thus continue to suffer under a skewed system that the superior colonial power has no intention of changing as long as it is in line with its colonial project.

This skewed system has also been in Israel’s favor since it allowed it to run a cheaper occupation. On the one hand, the PA, a product of Oslo, has taken on the occupiers’ responsibilities to administer Palestinian affairs while cementing strong security ties with Israel. On the other hand, the flow of international aid to the OPT, mainly to facilitate the two-state solution and invest in Palestinian institution-building, has also relieved the occupier of many of its responsibilities.


While Israel is benefiting from this “five-star occupation,” Palestinians have been subject to growing structures of political and socio-economic inequality. Anecdotal evidence from the OPT suggests that the strong ties between the Palestinian political and economic elite—at the heart of the neo-patrimonial model established after Oslo—combined with the decreasing power of unions and civil society organizations, have contributed to a skewed political system characterized by the concentration of political and economic power that favors the elite and exacerbates inequality.

Growing structures of inequality are also the product of both Israel and the international community. For instance, the very formation of elites and rent provisions were facilitated by Israel as part of its efforts to create economic distinctions among Palestinians to further fragment and divide them, for example through VIP status. Moreover, the international community distributed international rents, in the form of subsidies and political legitimization, to returnee Palestinian capitalists, who were seen as legitimate nation-state builders. Many of those economic elites have maximized the privileges accorded to them to advance their own interests by influencing Palestinian policy-making. As a result, since the 1990s, Palestinians remain locked in an adverse equilibrium that benefits very few. For example, evidence has shown that the main beneficiaries of the 2006-10 economic boom in the West Bank were capital, rent, and profit—that is, earners of non-labor income.

[From the Journal of Palestine Studies | Undermining Democracy in Palestine: The Politics of International Aid since Oslo]

Social and economic injustice have also been reproduced by the PA’s embrace of neoliberal thinking as advocated by donors. This new trajectory is associated with a growing culture of debt-based consumerism.

Meanwhile, the growing disgruntlement with the Israeli occupation, the Palestinian leadership, and the international community has resulted in the outbreak of several protests in the past decade, led primarily by Palestinian youth calling for the abrogation of the Oslo Accords, including the Paris Protocol. Indeed, it is no surprise to anyone today that the so-called peace process was a myth and that the main goal was not to achieve “peace,” but rather to keep alive the “process” that would enable Israel to buy more time and cement its colonization.

While the PA has been clinging to the Oslo framework for too long, it might be hoped that Trump’s recent moves—recognition of Jerusalem as Israel’s capital; the move of the U.S. embassy to Jerusalem; defunding UNRWA and East Jerusalem hospitals; closing the PLO offices in Washington D.C.—would finally deal a blow to the Oslo myth. It remains to be seen how the PA will react and whether it end security coordination with Israel, break free of the Paris Protocol, and withdraw its recognition of the State of Israel. However, as long as there are some in the elite with vested interests in maintaining the current framework, it’s hard to believe that a final collapse of the economic framework of Oslo will take place.

About The Author: 

Nur is a Rhodes Scholar, doing her PhD at the University of Oxford, and is a policy advisor with Al-Shabaka: The Palestinian Policy Network.

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