The short- and long-term effects of the Six Day War on the Israeli economy

Abstract

ABSTRACTThis article examines the short- and long-term effects of the 1967 Six Day War on the Israeli economy. In the short run, the war led to a very big increase in aggregate demand (mainly military expenditures). This got the economy out of a Keynesian recession that prevailed before the war. There were several long-term effects. The French embargo on arms shipments to Israel, following the war, induced the development of a large military industrial base, which later became the basis for the impressive development of the high-tech industry. The influx of Palestinian workers into Israel depressed wages of unskilled workers, which slowed down the shift to more efficient production techniques (especially in construction). It also increased the dependency of the Palestinian economy on income earned by Palestinian workers in Israel.