The Palestinian economy and its trade pattern: Stylised facts and alternative modelling strategies

Botta, Alberto (2010): The Palestinian economy and its trade pattern: Stylised facts and alternative modelling strategies. Published in: The Palestinian economy: Theoretical and practical challenges (October 2010): pp. 194-231.

Abstract

The World Bank (WB) Computational General Equilibrium model (CGE) by Claus Astrup and Sebastian Dessus (2001) is a cornerstone study on Palestine. It adopts a strictly neoclassical perspective, in which price-driven adjustments and the Armington/Constant-Elasticity-of-Transformation (CET) apparatus describe the functioning of the Palestinian economy and its foreign trade relations. This paper argues that certain empirical and factual inconsistencies prevent such a “pure” neoclassical approach from representing the Palestinian reality. We firstly argue that quantity-driven adjustments better describe economic adjustments within the Palestinian economy than price-driven adjustments do. Secondly, we stress the prevailing inter-industry nature of Palestinian foreign trade and the relevance of real income variables to explain expenditure allocation between domestic and imported goods. These aspects are hardly caught by the Armington/CET apparatus and require an alternative formalizing strategy. The final section of the paper describes a heterodox/structuralist perspective on Palestine.

• Item Type: MPRA Paper
• Language: English
• Keywords: Palestine, Foreign trade, Structuralist CGE models
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C68 - Computable General Equilibrium Models; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B50 - General

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