Real Ekonomik

11.06.13

Why Peace is Important to the Israeli Economy

The surest way to discredit your views on the Israeli-Palestinian conflict is to argue that Israel has paid an economic price for it.  On both the left and right, the wisdom is that Israel has been doing just fine—so fine, that Israelis have grown inured to the potential benefits of peace.

In today’s New Yorker website, I show with the help of my colleague at Dartmouth, Yusaku Horiuchi, that the conventional wisdom is spectacularly wrong.  Israelis have paid a severe economic price for the conflict since 2001—at least a full year’s GDP—while the government has forfeited between $60-70 billion in public investment. The proof requires comparing the record of Israel to “synthetic Israel,” a hybrid of similar economies to which Israel may be usefully compared.

Excerpt:

Nor should the prospect of continuing conflict be considered a tolerable steady state. Even in the most high-tech industries, very few Israeli companies make consumer products like Waze’s app. They tend, instead, to solve problems for other companies, which entails building relationships with product-development groups around the world. Venture capitalists worry that, should Israel become a political pariah, many global corporations—potential customers for their portfolio startups—would write off dealing with Israelis as just too much trouble. On the other hand, imagine Israeli businesses, with Palestinian partners, building customer networks in Saudi Arabia and the Emirates.

Read the whole thing.