The Opportunity Cost of Conflict: Statistically Comparing Israel and Synthetic Israel

Abstract

What would Israel’s economy have looked like without the 2000 Palestinian Intifada? We examine this counterfactual question by statistically comparing economic growth trajectories of Israel and a “synthetic” Israel, which we construct by applying a method proposed by Abadie and Gardeazabal (2003) and Abadie, Diamond, and Hainmueller (2010; 2014). We find that per capita Gross Domestic Product (GDP) of Israel during the Second Intifada was reduced by an average of about 2,003 U.S. dollars per year (in 2005 U.S. dollars). This amounts to about 8.6% of the 2000 baseline level. In the case of the Second Intifada, the opportunity cost of conflict was indeed substantial and significant.