The nexus of trade, employment and economic growth: evidence from Palestine

Abugamea, Gaber (2019): The nexus of trade, employment and economic growth: evidence from Palestine. Published in: Journal of Smart Economic growth , Vol. 4, No. 3 (21 November 2019): pp. 1-21.

Abstract

The economies, trade and employment in the Palestinian territories (PTs) in the Gaza Strip and West Bank have undergone numerous shocks and instabilities over the past four decades. Palestinian External trade experienced numerous difficulties and in particular Israel imposing for restriction on Palestinian trade with the neighboring countries and the rest of the world as a whole. Meanwhile, employment rates in PTs decreased sharply by Israeli restrictions which imposed on Palestinian labor movement into Israel since 1994 and intensified with the Palestinian uprising in 2000 year., This study uses the cointegration and Granger causality tests to examine both the long run and short run relationships among trade, employment and economic growth of Palestine for the time period 1968-2017 . The econometrics results based on vector error correction models (VECM) confirm the existence of long run relation between trade, employment and economic growth and show that both employment and GDP are main determinants of trade but not trade and GDP determinants of employment or trade and employment determinants of GDP. Causality tests confirm VECM results that changes on economic growth in the long run cause change in trade in the short run. By reconciling causality results with that of VECM, we conclude an existence of marginal causality runs from GDP to employment and from trade to employment.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trade, Employment, Economic growth, Cointegration, Granger causality tests, Palestine
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

References

1.Abugamea, G.H., (2005), “The Palestinian External Merchandise Trade: Determinants and Stability Investigation during 1968-1968”, An Najah University J. Research (H.Sc.), Vol.19 (1), 267-294.

2.Abugamea, G.H., (2008), " Palestinian Import-Export Trade Modeling for the Period 1968-1998, An Application of Seemingly Unrelated Regression Equations", Studies in Business and Economics-Qatar University Journal,Vol.14 (2), 51-64.

3.Abugamea, G. H. (2010). The competitiveness of the Palestinian foreign trade: A cointegration analysis. Economic Research Forum Working Papers, No. 541:1-14.

4.Abugamea, G.H., (2015), “ External Trade and Economic Growth Relationship Under Trouble: Time Series Evidence from Palestine”, Swift Journal of Economics and International Finance, Vol. 1(2), 10-16.

5.Abugamea, G.H., (2018), “Determinants of Unemployment: Empirical Evidence from Palestine”, MPRA Paper No. 89424, Online at https://mpra.ub.uni-muenchen.de/89424/.

6.Anderson, L. and Babula, R., (2008), “The link between openness and long run economic growth” Journal of International Commerce and Economics, July, 1-20.

7. Bhagwati, J., and Srinivasan, T.N., (2002), “Trade and Poverty in the Poor Countries” The American Economic Review, 92 (2): 180-183.

8.Bruno, G.S.F, Falzoni, A.M, and Helg, R., (2004), “Measuring the Effect of Globalization on Labor Demand Elasticity: An Empirical Application to OECD Countries, CESPRI-Bocconi University, Milano Working Paper, No:153.

9.Jenkins, R. O and Sen, K., (2006), “International Trade and Manufacturing Employment in the South: Four Country Case –studies” Oxford Development Studies, Vol.34 (3), 299-322.

10.Bsharat, M., (2014), "The Effects of Exogenous Factors on The Performance of External Sector in Palestine: A VECM Approach", Working Paper, 1-20, Palestine Monetary Authority, Palestine.

11.Cernat, L., and Souse, N., (2015), “ The Trade and Jobs Nexus in Europe: How Important are Mode 5 Services Exports?”, CESifo Forum, ISSN 2190-717X, ifo Institut-Leibniz-Institut für Wirtschaftsforschung an der Universität München, München, Vol.16, Iss.4, 65-67.

12.Chow, P.C.Y., (1987),"Causality between Export Growth and Industrial Performance: Evidence from the NIC's, Journal of Development Economics, 26, 55-63.

13.Dickey, D.A and Fuller, W.A., (1979), "Distribution of the Estimators for Autoregressive Time Series with a Unit Root", Journal of American Statistical Association,74, 366, 427-431.

14.Dollar, D. and Kraay, A., (2003), “Institutions, Trade, and Growth”, Journal of Monetary Economics, 50 (7): 133–162.

15.Granger, C.W.J., (1969),"Investigating Causal Relations by econometric Models: Cross Spectral Methods", Econometrica,37, 424-438.

16.Israeli Central Bureau of Statistics (ICBS), Statistical Abstract of Israel, Various issues.

17.Johansen, S., (1988), Statistical Analysis of Co-integration vectors, Journal of Dynamic and Control, 12, 231-254.

18.Johansen, S., (1991), Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models, Econometrics, 59, 1551-1580.

19.Johansen, s. and K. Juselius, (1990), Maximum Likelihood Estimation and Inference on Cointegration with application to the Demand for Money, Oxford Bulletin of Economics and Statistics, 52(2), 169-210.

20.Krugman. P. (ed) (1986), Strategic Trade Policy and New International Economics, Cambridge, MA.: The MIT Press.

21.Messerlin, P.A., (1995), “ The Impact of Trade and Foreign Direct Investment on Labor Markets: The French Case”, OECD Jobs Study Working Papers, No. 9, Paris: Organization for Economic Cooperation and Development. Palestinian Central Bureau of Statistics (PCBS), Various Issues.

22.Rodrik, Dani. (1996). “Labor Standards in International Trade: Do They Matter and What Do We Do About Them?” In Robert Lawrence, Dani Rodrik, and John Whalley, Emerging Agenda for Global Trade: High Stakes for Developing Countries. Washington, D.C.: Overseas Development Council.

23.Slaughter, M.J., (2001), “International Trade and Labor Demand Elasticities”, Journal of International Economics, 54, 27-56.

24.Tsegaye, D.L., (2015), “Trade and Growth Nexus in South Korea: Analysis using Vector Error Correction Model and Granger Causality Test. Global Development Network, Working Paper Series No.88, New Delhi.

25.Umoru, D., (2013), “Employment and International Trade Flows in Nigeria: VECM Analysis”, International Affairs and Global Strategy, Vol.8, 1-14.

26.United Nation Conference on Trade and Development (UNCTAD), (2012), " The Palestinian Economy: Macroeconomic and Trade Policy Making under Occupation", United Nations, New York and Geneva.

27.World Bank, (1993). Developing the Occupied Territories. An Investment in Peace. Vol. 2,Washington, DC.