Abstract
International aid to Palestinians is one of the highest in the world. Meanwhile, the need for such aid is on the increase. Under the strict occupation policies, whether political, economic or military, the majority of international aid is absorbed by the Israeli economy render the Palestinian economy completely dependent. Four simultaneous equations were estimated using the
Highlights
Palestine enjoys one of the highest per capita Official Development Assistance (ODA) around the world
Our expectation is that ODA enhances private and public consumption and creates rent seeking in public behavior that would crowd out the domestic savings that would react negatively on investment, growth, in such cases, ODA increases imports as a result of higher relative prices in the local economy as a result of the international purchasing power and increasing demand on tradable sectors and non-tradable sectors, and emerging Dutch disease
The informal sector in Palestine is notably huge, Sabra et al (2015), for several reasons such as dependency on Israeli economy, occupation control of borders and occupation restriction, which makes government relay on indirect taxes, such as customs and VAT collected by Israel, as long as the tax base is so weak as the result of the shadow economy dominance11
Summary
Palestine enjoys one of the highest per capita Official Development Assistance (ODA) around the world. This aid ranges from 327 to 602 US$ per capita with an average of 500 US$ for the period from 2000 to 2019, in constant prices[1]. Trade balance between Palestine and Israel suffers from a severe and chronic shortage, which indicates a deep dependency on Israeli economy. These severe economic circumstances transform Palestinian economy to an economic backyard to the Israeli economy.
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