Study: Peace would boost Israel's economy $123b by 2024

RAND corporation study examines benefits to Israeli, Palestinian economies that could result from a peace agreement.

Shekel money bills (photo credit: REUTERS)
Shekel money bills
(photo credit: REUTERS)
If Israel and the Palestinians were able to make peace, Israel’s economy would grow by an additional combined $123 billion over a decade, according to a study released Monday by the RAND corporation.
The study, “The Costs of the Israeli-Palestinian Conflict,” examined the budgetary and economic costs of five different conflict-related scenarios from 2014 to 2024 – a two-state solution, a coordinated unilateral withdrawal, an uncoordinated unilateral withdrawal, Palestinian nonviolent resistance and a violent uprising – and compared them with a baseline scenario.
“We think that this study illustrates significant costs and unrealized benefits that partied haven’t been able to conceptualize themselves,” Charles P.
Ries, one of the study’s authors, told The Jerusalem Post. “We did not find another study that took this approach.”
The study included estimates of direct costs such as budgetary spending and those associated with violence, as well as opportunity costs such as investment and new market opportunities. Each of the scenarios had implications on issues as wide-ranging as the costs of banking regulation and the cost of instability and uncertainty on business. The online version of the study provides a handy calculator that lets users fiddle with the assumptions of each scenario.
“For Israel, the primary direct costs stemming from the conflict include budgetary expenditures on settlements and security – e.g., military mobilizations.
The largest opportunity cost is the impact of perceived instability in Israel on its investment and economic activity,” the report said.
The study estimated, for example, that Israel’s government spends more than 2 percent of its budget on settlements around Jerusalem and in the West Bank.
The two-state scenario envisioned withdrawing 100,000 settlers from the West Bank (with the international community picking up 75% of the bill for their relocation), a 15% increase in investment and labor productivity, a 20% increase in tourism and a tripling of trade in the greater Middle East.
Meanwhile, Palestinians would see a $50b. increase to their economy over 10 years, representing a 36% economic increase per person (compared with the 5% per person bump in Israel). If, however, Israel and the Palestinians fall back into serious violence, per capita GDP would fall 10% for Israel and 47% for Palestinians, adding up to 10-year losses of $250b. and $46b., respectively.
Both withdrawal scenarios had relatively minor effects on the two economies.
The study, of course, relied on big assumptions to define each of the scenarios; the baseline scenario, for example, had to assume that there would be no major wars or uprisings, but the baseline figures they used covered the second intifada, the financial crisis and four wars.
The two-state scenario took for granted that all agreements hold up over time and that the situation does not devolve.
The violent uprising case envisioned an eruption within two years that lasted for three years, but did not reach second intifada levels. It assumed that the PA would collapse and Israel would take over responsibility for governing Palestinians.
The option of nonviolent Palestinian resistance, which refers to Palestinians pursuing Israel at the UN and international forums, was pegged as the only scenario in which anti-Israel boycotts would take hold, costing 2% of GDP in 10 years.
“We recognize that the real world rarely follows pure scenarios, but analytically we wanted to distinguish scenarios one from the other,” said Ries.
The report’s authors found a few surprising in the course of their research. For example, the security-related savings to Israel from a peace deal wouldn’t come from reduced military spending, but simply from lower levels of instability and violence.
Ultimately, however, the authors said that the purpose of the report was to help shed light on the hidden costs of the conflict.
“We’re not an advocacy organization, we’re not partisan, we’re not making recommendations.
We’re giving the parties information they can use to make decision,” Ries said.
“Everyone in the region, not to mention international capitals, is not too optimistic that anything dramatic is going to happen on this agenda in the near future, so this was an interesting moment for people to pause and think about it.”
The study was funded by David and Carol Richards, who also sponsored a 2005 RAND study on how to successfully build a Palestinian state. David Richards died earlier in the year.
‘A decade of successful BDS could cost $47 billion’
A successful Boycott, Divestment and Sanctions campaign against Israel could cost the economy a cumulative $47 billion over a decade, according to a study done by the RAND corporation on the costs of the Israeli-Palestinian conflict.
Comprehensive studies on the potential impact of BDS on Israel’s economy are few.
“Evidence on the effectiveness of sanctions is mixed, making an assessment of the potential economic effects of the BDS movement problematic,” the report noted.
The above figure, which was not published in the report, was based on a model that examined other international attempts to boycott countries.
Daniel Egel, the RAND researcher who wrote the BDS section of the report, told The Jerusalem Post that the true danger of BDS seemed to come from divestment, not product boycotts.
“Most people talking about BDS talk about export boycotts, and those are very uncommon,” he said.
Instead, it is the prospect of financial sanctions which raise Israel’s risk premiums and dry up its access to credit that could hit hardest.
If BDS took hold in a serious way in 2014, Egel said, in 2024 the economy would be $8.8b. smaller than if it remained on its current path.