Palestine's remarkable economic paradox

Palestine's remarkable economic paradox
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Published August 13th, 2013 - 12:01 GMT via SyndiGate.info

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In sum, the Palestinian paradox is not a paradox: it is an opportunity.
In sum, the Palestinian paradox is not a paradox: it is an opportunity.
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Gaza
,
World Bank Group
,
Hamas
,
civil society

For its level of per-capita income (around $1,500), the Palestinian territories have among the best social indicators in the world.  For example:

Malnutrition. Prevalence of stunting (low height for age) and wasting (low weight for height) is about one-third the average for middle-income countries, and comparable to levels of Singapore, Germany and the United States.

Health. Indicators of child health, such as immunization rates, pre-natal care, etc. are close to 100 percent.

Education. Nearly all children between ages 6 and 12 are enrolled in school. Only one percent of the population (men and women, rural and urban) are illiterate.

Malnutrition. Prevalence of stunting (low height for age) and wasting (low weight for height) is about one-third the average for middle-income countries, and comparable to levels of Singapore, Germany and the United States.

Health. Indicators of child health, such as immunization rates, pre-natal care, etc. are close to 100 percent.

Education. Nearly all children between ages 6 and 12 are enrolled in school. Only one percent of the population (men and women, rural and urban) are illiterate.

These achievements are all the more remarkable given the difficult economic circumstances facing the Palestinian territories.  In contrast to other countries such as India, Indonesia or Peru, teachers in the Palestinian territories do teach and clinics are staffed with health workers.  Possibly due to the traditional involvement of civil society organizations, the providers of basic services seem to be accountable to their clients. 

Furthermore, these high levels of education, especially among women, bode well for the next generation.  Studies of children’s survival, health and cognitive abilities systematically find a strong correlation with their mother’s education.  In the Palestinian territories, the next generation will likely be at least as healthy and well-educated as their parents.

Yet this same territory, with a very young population – 70 percent are under 30 years old – has some of the worst labor market outcomes in the world.  Unemployment rates have been close to 40 percent in Gaza and 20 percent in the West Bank, with youth unemployment rates about 10 percentage points higher.  Labor force participation rates are low, especially for women—at 15 percent, one of the lowest in the developing world.  And for those who are working, real wages are falling.  Between 1999 and 2009, they fell by 25 percent for those with a secondary school education.

How can this be?  The proximate reason is the long-standing conflict that constrains the West Bank and Gaza.  Most conflicts have harmful effects on the economy.  But in this case the effects are exacerbated by the fact that the Palestinian economy is dependent on Israel, with whom they are in conflict.  As a result, per-capita GDP in the Palestinian territories has fluctuated dramatically. After the second Intifada, between 1999 and 2002, it fell by 35 percent.  Employment, trade and tax revenues, all of which depended on Israel, were curtailed by restrictions.  Unemployment rates peaked at 30 percent and remained well above 20 percent in 2009.  The situation in Gaza is particularly acute.  Following the parliamentary elections and formation of the Hamas government in 2006, there was a fiscal crisis.  The complete embargo on the Gaza Strip in 2007 plunged that economy into a depression, with poverty rates spiking to nearly 50 percent.  Unemployment peaked at 41 percent in 2008 and remained high at 38 percent in 2010.

While the economic consequences of the conflict explain the high unemployment rates, they do not necessarily explain the low labor force participation rates, especially among women.  To be sure, these rates are low in the MENA region—at about half the worldwide average—and reflect a variety of social, legal and cultural factors.  A closer look at the Palestinian numbers, however, reveals some interesting patterns.  Female labor force participation rates have been slowly rising, possibly because, with widespread male unemployment, more women are looking for work.  In fact, unemployment rates among young women are higher than among young men.  Among older women, unemployment rates are lower than for men, possibly because tradition and norms discourage them from looking for work.

A related puzzle is why, with declining real wages, and therefore declining returns to employment, young Palestinians continue to invest in their education.  One reason could be that the fall in wages is mainly among the less-skilled, especially those who were cut out of employment opportunities in Israel following the Second Intifada.  In fact, while average wages were stagnating or declining, the “wage premium” (the wage gap between those with college degrees and those with elementary school education) continued to rise.  As a teenager in Hebron put it, “If someone wants to find a respectable job, he has to get educated.”  Furthermore, young people in general, and young women in particular, recognize the intrinsic value of education in developing a citizen of society.  “[Education] builds a person’s character and gives them their independence,” a young woman from the Yebna refugee camp in Rafah said.  Finally, many societies in conflict—including my own Tamil community of Sri Lanka—have invested in education because it is the most portable form of capital.

In sum, the Palestinian paradox is not a paradox: it is an opportunity.  Palestinian youth in general and young women in particular have the skills and drive to succeed.  Despite hardships, Palestinian society is supportive — from the delivery of basic services to changing norms — of these people’s succeeding.  And policymakers have been taking steps to create jobs under severe constraints.  Home-based work and information and communication technology-based jobs are two examples.  But the viability of these reforms depends on significant easing of restrictions on the access to natural resources and markets and lifting of the closure regime that have hitherto constrained private sector growth, investment and consequently job creation.  

Absent fundamental changes in this status-quo, policies to boost labor demand and expand the opportunity base will yield limited returns, especially in Gaza.  Put another way, the restrictions and closure regime are even costlier than they seem -- when you consider the extraordinary potential of these young people that is waiting to be realized.
 (© 2013 The World Bank Group, All Rights Reserved.)

 

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