The Palestinian Economy: Capable of Sustaining an Independent State?
May 25 2016

A careful look at the Palestinian economy reveals that it is fragmented and unviable.

The Palestinian economy is generally understood to refer to the economy of the West Bank and Gaza Strip. It encompasses a total population of 4.7 million Palestinians (1.8 million in Gaza and 2.9 million in the West Bank). The signing of the Oslo peace accords in 1993 between Israel and the Palestinian Liberation Organization (PLO) promised to reduce the Palestinian economy’s dependency on Israel and turn it into a dynamic engine of a viable Palestinian state. In 2012, the World Bank and the International Monetary Fund (IMF) argued that the Palestinian economy had matured and was capable of sustaining an independent Palestinian state. This state, first declared by the PLO in 1988, has received its highest international acknowledgement with its admission to the UN as a non-Member Observer State in 2012. It has been recognized so far by over 135 countries.

A careful look at the Palestinian economy, however, reveals that it is fragmented and unviable. In 2014 real GDP per capita income [1] in the West Bank and Gaza averaged $1,737. This was below its level in 1999 and only 15 per cent higher than at the signing of the Oslo peace process. Just as alarming, income levels in the Gaza Strip were 31 percent lower than they were 20 years ago and the difference in per capita income with the West Bank increased from 14 percent to 141 percent over this period in favor of the West Bank [2]; real GNI per capita income in the Gaza Strip in 2014 stood at $976 compared to $2,540 in the West Bank. [3] Moreover, Palestinian economic growth has been erratic, growing between 3 and 5 per cent per annum since 1993. Poverty rates still hover above 40 per cent in the Gaza Strip. They have not fallen below 16 per cent in the West Bank. Unemployment in 2014 touched 47 percent of the working age population in the Gaza Strip and 17 percent in the West Bank. [4]

This economic outcome is a result of the way the Oslo peace process redefined Israeli colonial domination of the West Bank and Gaza Strip. Since 1993 Palestinian economic growth has hinged on three key determinants. These include the scope given to the Palestinian Authority (PA) to manage the Palestinian economy, the size of international aid being disbursed to the Palestinian people, and the nature of Israel’s wars and closure policies. These three elements have consolidated, rather than ended, Israel’s settler colonial domination.

The creation of the PA was the first step towards creating an economy that caters to the needs of the Palestinian people. It soon became the employer of last resort, absorbing nearly 30 per cent of the employed force in the Gaza Strip and between 12-18 per cent of those in the West Bank. [5] The PA became the manager of the Palestinian economy but its scope of action remained constrained by the terms of the Protocol on Economic Relations  of the Oslo agreements and by Israel’s restrictions on the movement of Palestinian goods and people. As a result economic growth in the Occupied Territories remained largely driven by financial services and real estate expansion. The share of agriculture in Palestinian GDP dropped from 18 percent in 1993 to less than 5 percent in 2014. The share of industry in GDP remained lower than 14 per cent in 2014. [6] The caretaker government of former PA Prime Minister Salam Fayyad in 2007 helped improve Palestinian fiscal transparency and efficiency. The neoliberal policies introduced, though, have increased the Palestinian individual indebtedness to banks and international aid.

On average, every Palestinian man, woman, and child was the recipient of $258 in aid in 2004, an amount that increased to $497 in 2012. This compares with less than $150/person for Haiti in 2012 and $235 for East Timor in the 1990s. [7]  International aid has been key to the survival of the Palestinian people. It has been directed towards developing Palestinian industry and infrastructure as well as reducing poverty, encouraging good governance and promoting civil society organizations. Humanitarian and development aid is estimated to have amounted to over $25 billion since 1993, more than twice the size of the Palestinian GDP. Despite its unprecedented size, it has failed to be efficient or to reduce Palestinian dependency on Israel; still 80 per cent of Palestinian exports go to or via Israel and 70 percent of imports emanate from it. Most alarmingly, international aid is indirectly subsidizing Israeli occupation rather than ending it.

Since the Israeli siege of Gaza in 2006 and the Hamas takeover in 2007 the Palestinian economy effectively split into at least two economies, if not more. The economy of Gaza became an economy of war and siege, reliant on underground tunnels whenever they are not destroyed by Israel, and in need of humanitarian aid whenever Israel allows it. Israel’s three wars on Gaza, launched in 2008-2009, 2012 and 2014, are estimated to have each cost $5 billion in damage. This is twice the size of the Strip’s GDP. Production in agriculture, manufacturing, and electricity has been cut by 50 percent while construction has been reduced by 83 per cent. 90 per cent of water in Gaza today is considered undrinkable and nearly 80 percent of Gaza’s population receives some kind of social assistance.

The Palestinian economy has failed to become independent or sustainable because of Israel’s expropriation of Palestinian land and resources. Since 1993 Israel has built over 700 km of bypass roads and continues to control directly 56 per cent of the West Bank (Area C). It has expanded its settler population to over 545,000 settlers in the West Bank and East Jerusalem. Israel has also completed the construction of 62 per cent of its 708 km long separation barrier. Upon completion this apartheid wall would encircle and economically strangle 498,000 Palestinians in the West Bank. [8]  Israel, moreover, has continued to impose 27 permanent checkpoints in the West Bank, which cut the Palestinians into fragmented population reserves whose economic prospects are at the mercy of Israeli soldiers manning the checkpoint. These population reserves are also cut from East Jerusalem whose economy has been severed from the rest of the West Bank, most sharply since the second intifada in 2000.


It is impossible today to talk about a Palestinian economy, for it is fragmented, aid dependent and unsustainable. Such an economy does not encompass the entirety of the Palestinian people for it excludes the Palestinian citizens of Israel as well as the refugees living outside the Green Line. It neither encompasses the Palestinians working in East Jerusalem nor integrates the West Bank and Gaza Strip in a single unified entity. It has rather become a series of disconnected population reserves, analogous to South Africa’s Bantustans in the Apartheid era. These population reserves are encircled by Israeli checkpoints, dependent on Israeli goods, and at the mercy of Israeli economic and political priorities.

Today it is more appropriate to talk about Palestinian economic resistance, one that seeks to challenge Israeli colonial expropriation by remaining steadfast on the land. Palestinians are economically resisting Israeli domination by boycotting Israeli products and seeking to produce their own goods. The Boycott, Divestment and Sanction campaign is projected to cost Israel $1.4 billion a year and is likely to help Palestinian self-growth. The autarkic strategies employed by Gazans have been impressive in their creativity, recycling strategies and their resilience. They are unlikely to become sustainable, however, without ending the siege and lack of access to the outside world. The Palestinian economy, just like the Palestinian state cannot exist, let alone prosper, before the international community holds Israel accountable to international law, protects Palestinian rights and forces Israel to end its occupation.

Leila Farsakh is Associate Professor of Political Science at the University of Massachusetts Boston. She serves on the editorial board of the Journal of Palestine Studies and is a Senior Fellow at the Institute for Palestine Studies.

Special Focus – Political Economy of Palestine


[1] Taking into account inflation.

[2] World Bank, Economic Monitoring Report to the Ad Hoc Liaison Committee, Washington D.C.: World Bank, 27 May, 2015


[4] PCBS, Labor Force Survey 2014, at

[5] MAS, Economic Monitor, Ramallah, West Bank.

[6] PCBS, Statistical Abstract of Palestine, 2014.

[7] Calculated from Global Humanitarian Assistance,  Assistance to the West Bank and Gaza Strip at, accessed December, 2015, and World Bank, Official Development Assistance Data, West Bank and Gaza data for 2012, at

[8] Btselem, at

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