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Trade Options for the Palestinian
Economy: Some Orders of Magnitude
by
Claus Astrup and S6bastien Dessus*
Middle East and North Africa Region
March 2001
Claus Astrup and Sebastien Dessus are with the World Bank, and based in the West Bank and Gaza office
in Al-Ram. The authors would like to thank Dr. Hasan Abu-libdeh and Rania Tijani. respectively president
and director of the Palestinian Central Bureau of Statistics, who provided us with excellent co-operation
without which this paper could not have been written. Comments and suggestions from Stephen Karam,
Nicholas Krafft, Elisabeth Ruppert, Joseph Saba, David Tarr and an anonymous referee were also highly
appreciated. The views expressed here are those of the authors and do not necessarily reflect those of the
World Bank. its Executive Directors or the country they represent.






Table of Contents
Summary
Trade Options for the Palestinian Economy ............................ 1
I.  Overview ..................................................................                                         1
II. Trade Patterns and Trade Policies .................................................................. 3
III. The Model .................................................................. 8
IV. Simulating Elements of Trade Reform .......................................................... 11
Reduced transaction costs ................................................................... 1
Elimination of tariffs and purchase taxes on imports from  third parties .......... 12
Cancellation of the purchase tax on imports from  Israel ............                        ..................... 14
Elimination of tariffs and purchase taxes on imports from  all origins .............. 16
Customs Union, Free Trade Agreement or Non-Discriminatory regime ? ......... 17
V.  Concluding remarks ..................................................................                             20
Tables
Table 1: Estimated Palestinian Foreign Trade Patterns in  1998 ................................... 3
Tabie 2: Taxes on Imports .................................................................. 7
Table 3: Simulations of Trade Reforms ..................................................................  20
References ..................................................................                                         23
Annex  1. Dispersion of Import Taxes Across Economic Activities ........                                     ............. 24
Annex 2. The General Equilibrium  Model . ......................................................... 24






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Resum6
Le document evalue de maniere quantitative diff6rentes options
pour le futur regime commercial Palestinien. Tour en reconnaissant que
les restrictions sur les mouvements de biens et personnes ont eu un
impact negatif sur le commerce exterieur, l'analyse suggere que l'union
douaniere en place a egalement ete couiteuse. Le passage a un regime
plus autonome presente des avantages s'il sert a reduire les taxes
d'importation, et ainsi le prix interieur des importations. La creation
d'une zone de libre-echange avec Israel, qui requiert l'adoption de regles
d'origine potentiellement cofiteuses, est comparee a celle d'un regime non
discriminatoire dans lequel la Cisjordanie et Gaza renoncent a leur acces
preferentiel au marche israelien. L'analyse se fonde sur des simulations
effectuees a l'aide d'un modele d'equilibre general calculable de
l'economiie Palestirienne, calibre sur la matrice de comptabilite sociale de
1998.






Summar
The paper quantitatively assess different options for the future
Palestinian trade regime. While acknowledging that restrictions on
movements of goods and people have had a negative impact on
Palestinian trade performance, the analysis suggests that the current
Customs Union has been costly as well. Moving toward a more
autonomous trade regime may present advantages if used to reduce
import taxes thereby lowering the domestic price of imports. Creating a
Free Trade Area with Israel, necessitating a potentially costly
irnplementation of rules of origin, is weighted against implementing a
non-discriminatory regime in which West Bank and Gaza renounce to its
preferential access to the Israeli market. The analysis is based on
simulations of a Computable General Equilibrium model of the
Palestinian economy using the Social Accounting Matrix for 1998 as
base.






Trade Options for the Palestinian Economy : Some Orders
of Magnitude
I. Overview
It is most likely that the choice of a future trade regime for the
Palestinian economy will be determined not by economic criteria alone.
Political choices will necessarily affect the range of possible options.
Moreover, the choice of a trade regime has major implications for fiscal
and labor policies. However, it remains useful to assess quantitatively
the impact of different trade regimes per se in order to inform the debate.
Such an analysis would be an important, but hardly the only,
informational factor for the parties making choices.
The guiding principles for the current Palestinian trade regime is
laid out in the Paris Protocol signed in 1994, which formalizes the de
facto customs union with Israel in effect since 1967. A continuation of
this system, which grants preferential access for Israeli goods on the
Palestinian market and vice versa, would require a great degree of
harmonization of trade and fiscal policies between the two economies. On
the other hand, granting more autonomy to the Palestinian authorities to
determine its future trade regime with regard to Israel and third parties,
as well as its fiscal policy (e.g. the rate of VAT), would necessitate
adopting another kind of trade relationship with Israel. Several options
could be envisaged in this respect, from the implementation of a free
trade agreement, which would maintain preferential trade between the
two partners, to the adoption of a non-discriminatory regime, in which
Israel would be considered by West Bank and Gaza as any other country.
According to a number of studies', the poor trade performance of
the Palestinian economy since 1993 is primarily the result of an
imperfect implementation of the Paris Protocol, caused mainly by
restrictions on movement of goods and people at borders and within West
Bank and Gaza as a result of security measures implemented by Israel.
Without playing down the negative impact of movement restrictions, this
paper argues that other factors have also played an important role. In
particular, the current trade and fiscal regimes have led to significant
trade diversion, as well as increased dependency on Israeli security
concerns. This paper also argues that moving towards a more
autonomous Palestinian trade regime may present some advantages, but
ISee notably UNCTAD (1998), Alonso et al. (1999), and European Commission (1999).



2
that the final outcome will depend on the design of the new trade policy,
and the extent to which transaction costs will be affected by the new
trading environment. A more autonomous regime may be rewarding if
used to lower the domestic price of imported goods, develop competitive
markets and re-balance trade flows with Israel and the rest of the world.
There are important options to be considered. Given the low level of tariff
duties in Israel, West Bank and Gaza could also consider renouncing its
preferential access to the Israeli market by adopting a non-
discriminatory regime with low external tariffs, as opposed to creating a
Free Trade Area with Israel which could imply costly rules of origin.
If the theoretical debate on the desirability of different trade options
for West Bank and Gaza has already been the object of several
publications,2 the empirical literature on the subject remains very poor.
To our knowledge, only a few quantitative estimates of the impacts of
different trade regimes have been produced (e.g. Arnon, 1996) and these
are generally outdated. The common argument raised for not
undertaking such studies is the lack of adequate data (Kanafani, 1996),
regarding trade flows between Israel and the Palestinian economy. The
Palestinian Central Bureau of Statistics (PCBS) has been producing,
since 1997, supply and use tables (SUT) which now, to a large extent,
permit this obstacle to be overcome. The SUT offers a coherent picture of
the different flows occurring among economic agents (producers,
consumers, government, trade partners), by reconciling the supply and
demand dimensions of the Palestinian economy in each market.' It gives
then the amount of export and imports by products that is consistent
with the output in each activity and the consumption (intermediate and
final) in each market. It also permits some of the trade distortions that
affect the Palestinian economy to be identified and measured.
We use the supply and use table for 1998 to calibrate an economy-
wide computable general equilibrium (CGE) model designed to assess the
impact of different trade policies. Such type of model has become a
standard tool for integrated assessment of trade policies for small
economies.4 Its main advantage lies in the possibility of combining
detailed and consistent databases with a theoretically sound framework,
able to capture feedback effects and market interdependencies, that may
either mute or accentuate first-order effects.
This paper is organized as follows. Section II describes the current
patterns of trade and trade policies in the Palestinian economy. Section
2 See for instance Kanafani (1996) and Panagarya and Diwan (1997).
3 The supply and use table does not include East Jerusalem.
4See for instance Rutherford, Rustrom and Tarr (1997), for Morocco, or Dessus and
Suwa (2000), for Egypt and Tunisia.



3
III presents the CGE model. Section IV reports the results of the analysis
and Section V concludes.
II. Trade Patterns and Trade Policies.
The most important current trade partner of West Bank and Gaza is
Israel. Of the total estimated  imports of US$ 3.2 billion in  1998,
approximately 3/4 originated in Israel (cf. Table 1). Figures for trade
between West bank and Gaza and Israel are subject to some degree of
uncertainty  because  not all trade  flows between  Israel and  the
Palestinian economy are registered due to the porous border, especially
between Israel and West Bank.V When balancing the Supply and Use
table, however, correction is made for the estimated value of unregistered
trade. With regard to exports. Palestinian trade is estimated to be even
more one-sided with around 95 percent of exports destined for Israel.
This is a result of both the historical circumstances, notably Israel's lack
of trade with Islamic countries, the current trade regime, and other
impediments to Palestinian trade with third parties. The following table
presents an estimation of trade patterns for West Bank and Gaza in
1998. After Israel, the most important source of imports were countries
which signed a Free Trade Agreement with Israel (cf. Table 1 for the list
of countries), where 13.3 percent of all Palestinian imports originate.
Table 1. Estimated Palestinian Foreign Trade Patterns in 1998
Imports                  Exports
Mill. US$        (%)     Mill. US$        (%)
Arab League Members                 35           1.1          25          3.4
Free Trade Countries               423          13.3           5          0.7
Israel                            2,422        75.9          697         95.8
Rest of the World                  312          9.8            0          0.0
Total                             3,192        100.0         727        100.0
Source: Authors' calculation based on data from the Palestinian Central Bureau of Statistics. It is assumed
that services trade takes place only between West Bank and Gaza and Israel. The Free Trade Area Countries
group includes: EU countnes, USA, Canada, The Czech and Slovak republics, Turkey, Hungaly, Poland and
Slovenia.
As observed in Table 1, West Bank and Gaza ran a trade deficit in
1998 of US$ 2.5 billion (or approximately 3/5 of GDP), as total exports
amounted to only 1/4 of total imports. The exported products reflect
5 Further, it is not possible to determine to which extent the import from Israel
represent genuine Israeli value added or whether Israel merely serves as transit country
for import from the rest of the world.



4
Palestinian comparative advantages vis-a-vis Israel in the present
circumstances and consist mainly of agricultural produce, clothing,
stone and basic metal products. These products account for
approximately 60 percent of total Palestinian exports.
The trade deficit is partly financed by remittances from Palestinian
workers working in Israel. After a sharp drop in the number of
Palestinian workers working in Israel in 1995 and 1996 due to border
restrictions and extensive closures, the number subsequently rebounded
and in 1998 employment in Israel accounted for more than 20 percent of
total Palestinian employment. Total net factor income amounted to US$
828 million in 1998, that is, more than the total amount of exports of
goods and non-factor services. Also a significant inflow of foreign aid, a
cumulated amount of approximately US$ 3 billion since 1993, has
contributed to the financing of the trade deficit. Although time series
data of Palestinian foreign trade is weak, it may be observed that the
trade deficit vis-a-vis Israel has been widening since 1993.6 While the
increase in trade deficit with Israel in the first years of the interim
agreement can be attributed to some extent to the increase in the
restrictions of movements, (more harmful for exports than for imports), it
is more difficult to explain why it still increased in the years 1998 and
1999, which witnessed only a few days of closures.
In the period 1967 to 1994 Palestinian trade policy was completely
determined by the Israeli trade policy. All tariffs, other levies,
requirements of standards etc. applied to imports from third parties
adopted by Israel were automatically in effect for West Bank and Gaza
too. Since 1994, the guiding principles for West Bank and Gaza trade
policy has been defined in the Protocol on Economic Relations Between
Israel and the PLO, signed in Paris on April 29 1994, henceforth the Paris
Protocol. The Paris Protocol was, with only minor modifications,
incorporated as Annex V in the Interim Agreement - the Oslo Agreement
- signed in Washington, September 28 1995.
In broad terms, the Paris Protocol formalized the de facto customs
union, which existed while West Bank and Gaza was totally under Israeli
control. Thus, the main feature of the trade regime defined in the Paris
Protocol is to give free access for Palestinian goods to the Israeli market
(and vice versa) and to keep policies governing import from third parties
under Israeli control. In particular, the Paris Protocol ensures that West
Bank and Gaza is not allowed to set tariffs and other levies lower than
6According to the Israel Bureau of Statistics, the Palestinian trade deficit vis-a-vis Israel
was approximately US$ 1.5 billion in 1993-94 (against US $ 1.7 billion in 1998).



5
the Israeli ones. But it also implies that West Bank and Gaza can benefit
from Israeli free trade agreements with e.g. EU and the US.7
The Paris Protocol does, however, provide the Palestinian Authority
with some degree of autonomy to define its own trade policy. This is
accomplished through the creation of three lists (lists Al, A2 and B) of
products for which the Palestinian Authority is free to set any tariff it
finds suitable.8 In terms of establishing a more non-discriminatory trade
regime than the Israeli trade regime, the potential given by the three lists
appear nevertheless rather limited since the Israeli tariffs on  the
products included are already either zero or very low, and in fact the
Palestinian Authority has so far not used the autonomy provided by the
Paris Protocol to set its own tariffs. Hence, Palestinian trade policies are
identical to Israeli trade policies.
Most customs declaration of goods destined for West Bank and Gaza
takes place at Israeli points of entry and is carried out by Israeli customs
officials. The accrued amount of import taxes is subsequently transferred
to the Palestinian Authority through the so-called revenue clearance
system.9 Almost 90 percent of the total revenue from import taxes
received by the Palestinian Authority comes from the clearance system.
Customs declarations of imports into Gaza through the Rafah and Eretz
crossing points and into West Bank via the Allenby Bridge are overseen
by Palestinian officials and revenues are immediately collected by the
Palestinian Authority, but the total amounts are only minor.
The revenue clearance system is based on the principle of "final
destination", which implies that only levies on imports from third parties
whose official destination is clearly marked "West Bank" or "Gaza" are
transferred. On the other hand, purchase taxes collected on imported
Israeli goods and on indirect imports (imports from third parties that are
ultimately consumed in West Bank and Gaza, but imported through an
7 Following the signing of the Paris Protocol, United States ratified a separate free trade
agreement with West Bank and Gaza in 1996, which essentially extended the
agreement that Israel had with the US to West Bank and Gaza. In 1997, the Palestinian
Authority and EU signed an Interim Association Agreement which provides duty-free
access for Palestinian goods to the EU and makes the Palestinian Authority a full
participant in the Euro-Mediterranean partnership. See European Commission (1999).
With respect to products on list Al and A2, mainly consumer goods, the Palestinian
Authority has full discretion over tariff setting, but the total amount of import from
third parties is limited by quotas. With respect to products on list B, mainly equipment
goods, the Palestinian Authority can set any tariff rate, but the products must meet
Israeli standards requirements. There are not quotas for the goods on list B. For a
detailed description and assessment of lists Al, A2 and B see Kanafani (1996).
9 Also VAT on Palestinian/Israeli transactions are cleared through this system as are
direct taxes on e.g. Palestinian workers working in Israel. Israel charges a 3 percent fee
on all clearance revenue.



6
Israeli agent) have until now not been included in the revenue clearance
system. This has led to a considerable loss of revenue for the Palestinian
Authority, since the revenue from purchase taxes levied on these imports
by the Israeli administration was not transferred. '0
The total amount of import taxes which accrued to the Palestinian
Authority in 1998 was US$ 128 million, according to figures from the
Ministry of Finance in West Bank and Gaza. The figure includes revenues
from regular tariffs on imports, as well as purchase tax levied on
imported goods from third parties, and revenues from a so-called
protection tax, which is marginal. This corresponds to a total average
implicit import tax of 16.6 percent on goods imported from third parties.
Thus, the combined effect of tariffs and purchase taxes creates a sizeable
wedge between world market prices and the prices which consumers and
producers in West Bank and Gaza face." Further, as no duties are levied
on imports from Israel a preference is obviously given to Israeli products
in comparison to imports from third parties. 12
The purchase tax is considered here as an import tax. Although
purchase tax is in theory levied on both imported and domestically
produced good, the delineation of the tax base is such that in practice
only goods not produced domestically is subject to the purchase tax.
Indeed, the revenue generated by purchase tax levied on domestically
produced goods is insignificant - only US$ 200,000 in 1998
In order to derive implicit import tax rates across countries of origin
and across products we use data on individual customs transactions in
1999 obtained from the Customs Department of the Palestinian Ministry
of Finance. The data includes information on the country of origin, the
10 As of August 2000 this problem has partly been solved within the framework of the
Joint Economic Committee, by reaching an agreement in principle on the rebate to the
Palestinian Authority of the purchase tax collected on some of the Israeli products
exported to West Bank and Gaza.
I IMoreover, the wedge between domestic and world market prices is exacerbated by the
fact that the effective rate of collection of VAT is significantly higher on imports from
third parties than on domestic production. We do not know the effective VAT collection
rate on imports from Israel. We only know the value of VAT revenue which is cleared by
Israeli authorities. This amount, approximately US$200 million, corresponds to the net
refunding of VAT paid by Palestinian enterprises on inputs imported from Israel. We
make the assumption that the effective rate of collection of the VAT on imports from
Israel is the same as that for imports from third parties, that is 8.6 percent for
agricultural goods (fruits and vegetables are exempted) and 12.8 percent for other goods
and services.
12 It should be noted, however, that since purchase taxes are levied on imports from
Israel (even if not rebated until now to the Palestinian Authority), it is most likely that
Israelis products enjoy a smaller advantage than the one produced by the combination
of tariffs and purchase taxes. This issue will be addressed in more details in Section IV.



7
type of product identified by 8-digit HS-codes, the value of the
transaction and the tariffs and purchase tax levied on the good.
Table 2. Taxes on Imports (%)
Tariffs Purchase Tax       VAT         Total*
Arab League Members                 11.1          0.5         10.5         23.4
Free Trade Countries                2.1          11.3         12.2         27.2
Israel                              0.0          0.0          12.6         12.6
Rest of the World                   10.7         11.1         12.5         37.2
Source: Authors calculation based on data from Ministry of Finance and Palestiriian Central Bureau of
Statistics. *:VAT is applied on the top of other taxes.
It is interesting to note that although the average tariff is lowest for
goods originating from Free Trade countries, 2.1 percent,'3 the preference
given via low tariffs are counteracted by high purchase taxes, 11.3
percent on average. This reflects the composition of products imported
from these countries which is characterized by a large share of
equipment goods and durable consumer goods where the purchase taxes
are relatively high. On the contrary, the burden from tariffs is significant
on imports from the Arab world, whereas hardly any purchase tax is
levied on these products. The total implicit tax on imports from the Arab
world is of the same order of magnitude as that for import from Free
Trade  countries.14 Imports from  the  Rest of the World  (ROW) are
particularly discriminated.
There is substantial dispersion of the imposed tariffs and purchase
taxes across products (see Annex 1). The total implicit import tax ranges
from virtually zero on dairy products to around 50 percent on tobacco
and beverages, with a standard deviation of 11.5 percent. Compared to a
uniform tariff structure, a dispersed tariff structure induces distortions
as it favors some activities at the expense of others by twisting market
signals and it thereby adds to the distortions created by the existence of
a wedge between world market and domestic prices. Further, a uniform
13 The average tariff on goods originating from Free Trade countries exceeds zero
because not all goods, notably agricultural goods, are included in the free trade
agreements. The average tariff on agricultural products reached 22 percent in Israel in
1999. Average tariff on dairy produce exceeded 95 percent. The Israeli agricultural
sector also benefited of large domestic support measures, as well as of considerable
non-tariff barriers (WTO, 1999).
14 Restrictions on trade with Arab countries for a given set of products (except those
permitted in lists Al and A2 of the interim agreement) are likely to represent a
significant impediment to the expansion of imports and exports. While the modeling
exercise performed below will give us a tentative assessment of the costs implied by
both the current trade policy and the high transaction costs, it is, on the contrary, very
difficult in methodological terms to measure the implicit cost of a zero-quota policy.



8
tax structure is easier to administer and it may reduce rent seeking
behavior on part of both importers and government officials.
Apart from the distortions created by the trade policy, Palestinian
producers face considerable transactions costs, which severely impede
the development of trade activity. The high transaction costs are reflected
in the fact that trade and transport costs adds 35 percent to the cost
(producer price before trade and transportation costs) of domestic
tradable goods, according to the Supply and Use Table of the Palestinian
Central Bureau of Statistics.'5 This has to be compared with a premium
of 10 percent in the rest of the Middle East region (GTAP, 1999)."6 The
source of these extraordinary high transactions costs can not be
identified with certainty, but it is most likely that they are to some degree
due to extensive security checks of Palestinian cargo at Israel's external
borders, between Gaza and West Bank and within West Bank, which are
time consuming and which may damage the goods, especially those
perishable. A study carried out by the Federation of Palestinian
Chambers of Commerce, Industry and Agriculture in 1998 concluded
that the transaction cost are on average 30 percent higher for Palestinian
importers and exporters than for Israeli. Other reasons for high
transaction costs in West Bank and Gaza include notably a deficient
infrastructure and poor administrative procedures.
III. The Model
The following paragraphs are not intended to describe precisely the
characteristics of the model employed here, but rather to describe in
non-mathematical terms its main hypotheses, mechanisms, and the
statistical information used for the Palestinian economy. The reader may
refer for this purpose to Beghin et al. (1996) for a formal presentation of
this class of models, and to the Annex 2 attached to this paper.
In this model, prices are endogenous on each market (goods,
factors) and equalize supplies and demands, so as to obtain the
equilibrium. The equilibrium is general in the sense that it concerns all
the markets simultaneously. For instance, a decrease in tariffs on
imports will affect the demand of imports of both final and intermediate
goods. This will in turn affect the supply of domestic goods, and the
demand of factors in each activity. This will equally affect the price of
15 This measure is obtained by dividing the intermediate consumption of trade and
transport services by the sum of the other producers' expenses before tax (that is, value
added plus other intermediate consumption).
16 This region includes Israel, Jordan, Lebanon, Syria and the Gulf countries.



9
goods and the income of households, and the budget of the government,
who will need to find another source of financing.
The model uses the information contained in the supply and use
table for 1998. It considers one representative Palestinian household and
31 economic sectors (cf. Annex 1 for the list of activities/products). The
model distinguishes the four trading partners for the Palestinian
economy mentioned previously: Israel, the countries with which Israel
has signed a Free Trade Agreement, the group of members of the Arab
League, and the rest of the world (ROW). The basic features of the model
are summarized below.
Supply is modeled using nested constant elasticity of substitution
(CES) functions, which describe the substitution and complement
relations among the various inputs. Producers are cost-minimizers and
constant return to scale is assumed. Output results from two composite
goods: intermediate consumption and value added, combined in fixed
proportions. The intermediate aggregate is obtained by combining all
products in fixed proportions (Leontief structure). The value-added is
then decomposed in two substitutable parts: labor and capital, which are
both fully employed and perfectly mobile across sectors. A Cobb-Douglas
production function is assumed.
Even if static, this model is therefore intended to capture long term
allocative effects of different trade policies, since adjustment costs of
reallocating productive factors are ignored. However, it does not
incorporate the dynamic effects of trade policies, and notably their
impact on GDP growth, since resources (labor, capital, productivity) are
fixed in this model. Interpretations of results are therefore to be taken
with caution, since they only indicate what would be the impact of a
given policy on the allocation of resources, and not on their level.
Income from labor and capital is allocated to the representative
household. Household demand is derived from maximizing the utility
function, subject to the constraints of available income and consumer
price vector. Household utility is a positive function of consumption of
the various products and savings. Income elasticities are differentiated
by product. The calibration of the model determines a per capita
subsistence minimum for each product, which will be consumed
whatever the price and the income of the households, while the
remaining demand is derived through an optimization process. The
subsistence share in the consumption of basic goods is higher than in
the consumption of luxury goods. Government and investment demands
are disaggregated in sectoral demands once their total value is
determined according to fixed coefficient functions.



10
The model assumes imperfect substitution among goods originating
from different geographical areas (the so-called Armington assumption).
Import demand results from a CES aggregation function of domestic and
imported goods. Export supply is symmetrically modeled as a constant
elasticity of transformation function. Producers decide to allocate their
output to domestic or foreign markets responding to relative prices. At
the second stage, importers (exporters) choose the optimal choice of
demand (supply) across regions, again as a function of the relative
imports (exports) prices and the degree of substitution across regions.
Substitution elasticity between domestic and imported products is set at
2.2, and at 5.0 between imported products according to origin (Israel,
Arab countries or ROW). The elasticity of transformation between
products intended for the domestic market and products for export is
5.0, and 8.0 between the different destinations for export products 17.
The model considers the four policy instruments which have been
mentioned previously: VAT on domestic supply (by product), VAT on
imports (by product), tariff barriers (by product and by origin), purchase
taxes (by product and by origin). Quotas of lists Al and A2 are not
modeled, since it appears that they have not been binding until now.
They have therefore no effects on the supply of imported goods.
Finally, several macro-economic constraints are introduced in this
model. First, the small country  assumption  holds, the Palestinian
economy being unable to change world prices; thus, its imports and
exports prices are exogenous. Capital transfers are exogenous as well,
and therefore the trade balance is fixed, so as to achieve the balance of
payments equilibrium. Second, the model imposes a fixed real
government deficit, and fixed real public expenditures. Public receipts
thus adjust endogenously in order to achieve the predetermined net
government position, by shifting uniformly the VAT effective rates of
collection on domestic and imported goods.'8 Third, investment is
determined by the availability of savings, the latter originating from
households, government and abroad. Since government and foreign
17 Production function and trade elasticities come from the empirical literature devoted
to CGE models. They are not specific to the West Bank and Gaza. See for instance
Burniaux, Nicoletti and Oliveira-Martins (1992), Konan and Maskus (1997) or more
recently Gallaway, McDaniel and Rivera (2000).
18 In the model, only effective rates of collection matter (cf. Annex 2). This means that
increasing VAT receipts by improving tax collection or by increasing nominal VAT rates
strictly produce the same results. Assessing the practical feasibility of these two fiscal
options, as well as their respective impacts on economic activity, goes beyond the scope
of this paper. Besides, alternative fiscal closure rules have been tested, including (i) the
harmonisation of VAT rates on domestic and imported products, and (ii) the increase in
direct taxes in order to compensate for the loss in import duties. Results are only
marginally affected by these alternative choices, and are available upon request from
the authors.



11
savings are exogenous in this model, changes in investment volumes
reflect changes in household savings and changes in the price of
investment.
Policy impacts are compared to the situation observed in 1998, in
terms of real consumption and investment, exports and imports volumes,
real wages, real rate of return of capital, and households' welfare. The
chosen yardstick for welfare is the assessment of equivalent variation,
which is the sum of two terms. The first one measures the gain (or the
loss) of disposable income caused by the reform, and the second one
measures the income needed after the reform to obtain the same level of
utility as before the reform.
IV. Simulating Elements of Trade Reform.
Rather than simulating scenarios of comprehensive trade reforms,
which would combine different trade measures with different relative
weights, we prefer to simulate individual trade measures in order to
isolate and better understand the effect of each of them (even if some of
them are unlikely to be implemented alone). Several measures are
considered here, which - if combined with different weights - could
represent different choices of trade regime, from an improved customs'
union to a full separation.
Reduced Transaction costs.
It is assumed here that a relaxation of security controls translates
into a 15 percent decrease in trade and transport margins. Even if ad
hoc, this assumption is rather conservative, since it leaves transaction
costs approxirnately three times higher the average level that can be
observed in neighboring countries.19 This scenario is modeled by
increasing exogenous total factor productivity levels in commerce and
transport sectors by 15 percent. Column 1 in Table 3 reports the results
of this scenario.
Reduced transaction costs induce a significant increase in trade
activity. Exports volume increase by 6.9 percent, while gains in terms of
consumer welfare represent more than 3 percent of the level of GDP in
'9 Reducing by 15 percent the average transaction cost means that the producer price is
increased by 30 percent (instead of 35 percent previously) once trade and transport
margins are added to the price out of factory. We therefore implicitly assume that only 5
percentage points out of 35- or less than one-fifth of the difference in transaction cost
with neighbouring countries - can be attributed to security checks.



12
1998. The general increase in productivity is illustrated by the
augmentation of labor and capital real remuneration (respectively 3.5
and 2.4 percent).
Beneficiary sectors are those who consume a lot of trade and
transport services, e.g. vegetables, animal food, chemical products, and
more directly the trade and transport service sectors who see their
demand increasing. Israel also benefits from reduced transaction costs in
the Palestinian economy. It imports more products from West Bank and
Gaza - because they become on average cheaper, and exports more to
West Bank and Gaza, due to increased activity and demand. Overall
trade balance with Israel remains almost unchanged. Exports to the rest
of the world (ROW) increase much more rapidly than to any of the three
other regions, +33.7 percent, suggesting that trade with this region is not
only discrin-inated by higher nominal protection (see Table 2), but that it
also suffers from particularly high transaction costs.
Real private consumption increases more rapidly than investment
(respectively 2.8 and 0.7 percent), meaning that the price of final goods
decline more with reduced transaction costs than the price of
investment. This, to a large extent, because investment expenditures are
heavily concentrated in construction services (approximately 74 percent
of total investment expenditures), which are mostly non-tradable.
Results obtained here - already significant in terms of magnitude
despite the fact that we attribute only a small portion of the high
transaction costs to security-related trade barriers, can still be
considered as lower bound estimates of their influence on economic
activity, when compared with the estimates obtained by Limao and
Venables (2000). Using 1990 data for 93 countries, these authors
estimate that a 1 percent decrease in transport costs increases by 2.5
percent on average the volume of imports (or equivalently, a 15 percent
decreases in transport costs leads to a 37.5 percent increase in the
volume of imports). This effect is much larger than the one we obtain,
since a decreases of 15 percent in trade and transport costs corresponds
in our model only to an increase of 1.6 percent in imports.
Even if only indicative, our results therefore clearly underline the
large potential impact of a relaxation of security controls on the
Palestinian economy and trade.
Elimination of tariffs and purchase taxes on imports from third
parties.
This measure could be implemented within a Free Trade Area
agreement, or a non discriminatory regime which would leave the



13
possibility for the Palestinian Authority to define unilaterally its own
trade policy with regard to third parties, as well as its fiscal policy.
Associated costs of implementing a free trade area or a non
discriminatory regime, such as establishing borders (physical or notional)
and rules of origin, are not accounted for in this scenario, and will be
discussed below.
Tariffs and purchase taxes on imports from third parties are in this
simulation set to zero, and the loss of tariff and purchase taxes receipts
for the government is compensated by an uniform relative increase in the
VAT rate on domestic products and imports.
The simulation measures the costs of granting preferences to Israeli
imports within the current customs' union framework. This cost appears
to be substantial, since a removal of these preferences translates into an
aggregate welfare gain for households equivalent to 2.2 percent of GDP
(Column 2, Table 3). Imiports become cheaper, and the remuneration of
factors increase: real wages increase by 3.1 percent and capital rate of
return by 2.5 percent. In other words, gains of reallocation/efficiency are
sufficient to increase exports (by 3.2 percent, to finance additional
imports) without necessitating a real depreciation (a decrease in the real
remuneration of labor and capital). Metal products and vegetables are
among the beneficiary sectors, while equipment goods and beverages,
which were previously protected from the competition with third
countries by tariffs and purchase taxes, tend to lose with this reform.
Given their importance in comparison to tariffs, most of the impact
of such policy comes from the removal of purchase taxes. Thus, the
removal of tariffs on imports from third parties has only a minor impact
on the Palestinian economy, given the already low levels of nominal
protection of that kind.
The results suggest that the abolition of the purchase tax and tariff
has a larger relative impact on the price of investment than on the price
of private consumption (as illustrated by a larger increase in investment
than in private consumption). This, in spite of the fact that equipment
goods (whose price is more likely to diminish with trade liberalization)
represents less than 30 percent of total investment expenditures. The
price of equipment goods diminishes indeed by more than 10 percent,
while the price of construction remain unchanged with respect to the
pre-reform situation. Even if not accounted for in this model, this
decrease in the price of investment, as well as the observed increase in
the rate of return of capital, could have an additional positive impact on
capital formation, and in turn, on GDP growth.



14
Removing tariffs and purchase taxes on imports from third parties
has on the other hand obvious negative consequences for Israel. Its
exports to Palestine are reduced by 22 percent, despite the (small)
increase in the overall Palestinian demand for imported goods. This
decrease corresponds approximately to a 3 percent decrease in total
export receipts for Israel. Trade deficit with Israel drops significantly,
from US$ 1.7 to US$1.2 billion. Therefore, the relatively small decrease
in protection simulated here, which concerns only directly less than one-
fourth of total imports, could have a large impact on the diversification of
imports destined to West Bank and Gaza. Imports volumes from FTA
countries increase by 35 percent, and imports volumes from the rest of
the world more than double. On the other hand, imports from Arab
countries, which hardly exceeded 1 percent of total imports in 1998,
increase by only 20 percent. This phenomenon of high substitution of
imports from Israel to other sources denotes the small degree of
industrialization of the Palestinian economy, with little base at risk, and
low levels of intra-industry relations. Since a very large share of finished
goods are imported, they can be easily substituted from one origin to
another, without affecting dramatically the structure of production of the
Palestinian economy.
As mentioned previously, public receipts in the model adjust
endogenously in order to achieve the predetermined net government
position, by shifting uniformly the VAT rates of collection on domestic
and imported goods. In the present simulation, the loss in government
revenue arising from the cancellation of tariff and purchase taxes on
imports from third parties is compensated by a increase of 30 percent in
VAT collection.
Cancellation of the purchase tax on importsfrom Israel.
It may be argued that a removal of purchase taxes on Palestinian
imports from third parties would discriminate the Israeli exporters, if not
accompanied by a similar removal of the purchase tax on goods imported
from Israel. The reciprocal argument holds similarly that is, removing
the purchase tax on imports from Israel only would discriminate further
imports from third parties, making this simulation as well as the
previous one unlikely to be implemented alone. We nevertheless perform
here this simulation, as well as we performed the previous one, in the
sake of distinguishing their respective likely impacts.
We simulate the impact of a removal of the purchase tax on imports
from Israel by reducing accordingly the price of imports from Israel



15
(Column 3, Table 3).20 It is important to notice that this simulation does
not correspond to a simple transfer of purchase taxes receipts on Israeli
goods to the Palestinian Authority, since goods from Israel which were
previously highly taxed, are now only subject to VAT. This is hence
equivalent to a positive terms of trade shock.
The simulation may be seen as symmetric to the one in which
purchase taxes on imports from third parties were removed. In the
present case, imports from Israel increase by 20 percent (Column 3,
Table 3), and the trade deficit with Israel increases by 9.7 percent, from
US$ 1.7 to US$ 1.9 billion. Total imports from third parties decrease by
22 percent, while total imports increase by 10 percent.
Consumers substitute their consumption of goods from third parties
to goods originating from Israel, which become cheaper after the reform,
and it provides them with some significant welfare gains, representing
4.4 percent of GDP in 1998. This increase mostly comes from an increase
in final consumption of 3.7 percent, which is the largest component of
GDP. Still, the impact on investment is not to be neglected, with an
increase of 5.8 percent, larger in relative terms than for consumption,
and also larger with respect to private consumption than in the previous
simulation. This would tend to suggest that the purchase tax on imports
from Israel is more concentrated on equipment goods than are the sum
of tariffs and purchase taxes on imports from third parties.
The difference in magnitude with the previous simulation - notably
in the increase of total imports of 10 percent against 0.7 percent, is to be
explained by the fact that this scenario directly concerns a much larger
share of imports, since imports from Israel represented more than 3/4 of
total imports in 1998.
Another important difference with the previous simulation lies in the
negative impact on economic activity and factor remuneration. While in
the previous simulation the increase in households' welfare was both the
result of an increase in factor remuneration and a decrease in the price
of consumption goods, here we can observe a strong decrease in the price
of consumption goods, but also a decrease in the real remuneration of
labor and capital (-1.2 and -1.7 percent). In other words, the windfall
gain of cheaper imports from Israel reduces domestic activity, and the
demand for labor and capital. Gains of reallocation, although significant,
are not sufficient to finance the additional bill of imports, and the
required increase in exports also necessitates a real depreciation.
20 Given the composition of exports from Israel to West Bank and Gaza, it is estimated
that the average price on imports from Israel would decline by 8.7 percent, as a result of
the cancellation of the purchase tax.



16
The metal products sector is again among the largest beneficiaries,
while sectors producing beverages and "other manufactured goods" are
losing from the reform.
Similar to the previous reforms, this scenario necessitates an
increase in VAT rates, to compensate from the loss in government
revenue. This loss originates from the substitution of imports from third
parties (on which tariff and purchase taxes are applied) to imports from
Israel, only subject to VAT. The loss is compensated by a 10 percent
increase in the total collection of VAT revenues.
Elimination of tariffs and purchase taxes on imports from all
origins.
As mentioned earlier, this last scenario is to be combined with the
above to become more realistic. Tariffs, purchase taxes on imports from
third parties and purchase taxes on imports from Israel are therefore in
this scenario all set to zero (Column 4, Table 3). This reform produces
significant effects. First, final consumption of goods previously taxed
augments significantly, which explains to a large extent the observed
gain in welfare for household, amounting to 5.7 percent of GDP.
Investment expenditures, which become much cheaper, also increase by
7.8 percent.
More important is however that the combined effects of these
different measures produce significant reallocation gains, amounting to
the equivalent of 2.5 percent of GDP. Changes in the price wedges
between domestic and imported goods, which did not occur to any large
extent in the previous simulations, where agents mostly substituted one
source of imports to another, with only limited impact on domestic
production, tend to produce now substantial gains of specialization. We
observe significant movements of factor reallocation, with 2 percent of
the labor force and 3 percent of the capital stock moving from one sector
to another. As a result, exports volumes increase by 5 percent, without
being accompanied by any real depreciation. Real wages increase by 2.9
percent and capital remuneration by 2.1 percent.
Exports volumes to Israel increase (5.2 percent), while imports from
Israel decline (-1.5 percent). Besides, terms of trade with Israel are
improved (due to the removal of the purchase tax), which reduces
significantly the trade deficit with Israel (-16.4 percent, or equivalently a
deficit reduced by almost US$ 300 million). This result suggests that a
significant part of the current trade deficit with Israel is to be explained
by the nature of the Paris Protocol, and not only by security barriers.
This, possibly as a result of the taxation of important inputs imported



17
from third parties and Israel, such as metallic goods, machinery and
equipment goods or other manufactured goods, which penalize the
Palestinian industry in competition with foreign producers on the Israeli
market, the latter being only taxed on final goods.
This reform necessitates an increase of 30 percent in VAT collection,
to compensate from the loss in tariff and purchase tax revenues on
imports.
Customs Union, Free Trade Agreement or Non-Discriminatory
regime ?
Implementing the measures described above may require a
significant departure from the current arrangements provisioned in the
Paris protocol. This is especially the case for reforms concerning imports
from third parties, while reforms concerning purchase taxes on imports
from Israel could be implemented within the current customs-union
framework, since it would not necessitate to control for the origin of
goods. In this last case, however, trade flows between Israel and the
Palestinian economy would increase further, to the detriment of third
parties, which would augment the degree of dependency of the
Palestinian export industry to the Israeli security concerns - and possibly
transaction costs. On the other hand, removal of tariffs / purchase taxes
on imports from third parties would require mechanisms to identify the
origin of goods, such as rules of origin and/or entry/customs stations in
order to avoid trade deflection21, which might in turn also increase
transaction costs.
Another solution could consist of increasing the range of goods and
quotas provisioned in lists Al, A2 and B of the Paris protocol. However,
this presents high risk of trade deflection in the absence of mechanisms
to control trade flows between Israel and West Bank and Gaza. Two
solutions are therefore possible: establishing physical means of control -
such as customs stations - but in this case, no more quotas is needed,
or setting up imports monopolies - which will immediately create a rent
close to the tax imposed on the same good in Israel. Expanding quotas is
therefore not a viable solution in the long run.
The most desirable solution is obviously that the two partners
concert on their common trade policies, to account also for the interests
of the Palestinian economy. In case where this last solution is not to be
envisaged in the near future, two alternatives then remain, that is a Free
Trade Area (FTA), or a non-discriminatory regime (MFN).
21 See Erickson von Allmen and Nashashibi (1999) for a discussion on the implications
of establishing such mechanisms.



18
Establishing a FTA will require an administrative control of all goods
traded between Israel and the Palestinian economy, to check for its
origin. In addition, requirements of origin may encourage Palestinian
producers to use inputs from Israel (the reverse is obviously also true) to
become eligible for tariff exemption in Israel, even though the least-cost
supplier is outside the union.
Implementing a non-discriminatory regime (MFN) would not entail
such cost, because it would not require importers and exporters to
establish the origin of goods. It would neither bear the risk of creating a
very complex set of rules of origin, nor would it undermine future efforts
of regional and global integration. On the other hand, the two partners
would not in theory benefit anymore from tariff exemption on the other
market. However, since the implementation of a non-discriminatory
regime is justified on the ground that it permits to lower taxes on
imports, Israeli products would not be taxed in this case. The cost for the
Palestinian economy would therefore come only from the loss of its
preferential access to the Israeli market. This cost may be modeled by
reducing the price of exports at which Palestinian exporters can sell their
goods on the Israeli market, so as to leave unchanged the price of
Palestinian goods inclusive of tariffs (which were previously equal to zero)
on this market. This is hence equivalent to a negative terms of trade
shock.
We perform two simulations to measure and compare the
desirability of the two options, that is FTA versus MFN. First, we
simulate the impact of augmenting the price of imports from Israel by 3
percent, which is an estimated cost of obtaining the necessary
documents to prove the origin of goods (Krueger, 1995). For the same
reason, we reduce by 3 percent the price at which Palestinian exports
have access to the Israeli market (Column 5, Table 3). This figure of 3
percent is in line with the cost charged to government by private
enterprises in order to control the origin of goods. It is of course
arbitrary, in the sense that local conditions, as well as the nature of the
agreement, may imply a higher, or lower, cost to prove the origin of
goods. Second, we simply apply the average tariff observed on imports
from third parties to the Palestinian goods exported to Israel, to simulate
the loss of preferential access to the Israeli market (Column 6, Table 3).22
These two scenarios incorporate the removal of taxes on imports
described previously (abolition of tariffs and purchase taxes on imports
22 Given the composition of Palestinian exports to Israel, it is estimated that the average
tariff would amount to 9.2 percent.



19
from third parties, abolition of the purchase tax on imports from Israel)
which justifies their likely implementation.
Simulations suggest that the impact of the two reforms on the
volume of Palestinian exports to Israel is merely the same, that is a
respective decrease of 5.3 and 7.2 percent with respect to the initial
situation (Columns 5 and 6, Table 3). On the other hand, implementing a
system of rules of origin increases the price of goods imported from Israel
while it leaves unchanged the price of imports from third parties. This
explains to a large extent why the former reform has a stronger negative
effect on imports from Israel than the latter (-9.8 percent against -4.6
percent). This might explain in turn why the increase in investment is
smaller in the FTA scenario (6.9 percent) than in the MFN scenario (9.5
percent) since imports from Israel embody a large share of equipment
goods. However, these two scenarios remain rather promising it terms of
potential capital formation, since they both combine a decrease in the
price of investment with an increase in the rate of return of capital.
It is also worth noticing that these two policy packages imply a
significant diversification of trade flows, especially in favor of the rest of
the world: in the FTA scenario, exports to ROW increase by 24.1 percent,
and imports from ROW by 82.4 percent. Corresponding figures for the
MFN scenario are respectively +41.6 percent for exports and +71.0
percent for imports. Results therefore strongly suggest that the very high
share of trade with Israel is to a significant extent the result of trade
policies currently implemented, and not only the consequence of
security-related trade barriers.
In sum, welfare gains for households are of the same orders of
magnitude, around 3 percent of GDP, and it appears difficult to establish
a strict superiority of one option over the other, given the numerous
uncertainties associated with this quantitative exercise, and notably the
cost of implementing rules of origin. For instance, using a 2 percent
premium rather than 3 percent to measure the cost of implementing
rules of origin would lead to a welfare gain for household equivalent to
3.8 percent of GDP, instead of 2.9 (results not reported).



20
Table 3: Simulations of Trade Reforms (%)
Si      S2       S3       S4       S5       S6
Welfare gains                         3.1      2.2      4.4     5.7      2.9      3.5
Real Private consumption              2.8      2.0     3.7      5.0      2.5      2.9
Real Investment                       0.7     3.1      5.8      7.8      6.9      9.5
Export volumes                        6.9      3.2     2.4      5.0    -4.3    -4.8
Of which to ALM                   7.3      3.0      0.3      1.0    20.7    51.4
Of which to FTA                   3.8      0.7    -1.5    -2.6    15.9    45.7
Of which to Israel                6.9      3.2      2.5      5.2    -5.3    -7.2
Of which to ROW                  33.7      5.3    -2.6       0.6    24.1    41.6
Import volumes                        1.6      0.7    10.0      7.7      2.5      4.7
Of which from ALM                 0.9    19.6   -25.7    11.7    14.4         8.1
Of which from FTA                 1.1    35.5   -23.9        9.1    13.5      8.5
Of which from Israel              1.8   -22.0    20.1       -1.5    -9.8    -4.6
Of which from ROW                 1.0   128.3   -18.3    77.0    82.4    71.0
Real wages                            3.5     3.1    -1.2       2.9      2.4      1.7
Real rate of return of capital        2.4     2.5      -1.7     2.1      1.8      2.3
Notes: All the percentages express relative change with respect to the iniutial situation. All variable are
expressed in volumes. Welfare gains are benchmarked with respect to the GDP level in 1998.
SI. Reduced Transaction Costs.
S2. Reduced taxes on imports from third parUes
S3. Reduced purchase tax on imports from Israel.
54. S2+S3
S5. S2+S3 + implementation of rules of origin
S6. S2+S3 + removal of preferential access to the Israeli market for Palestinian exports
V.  Concluding remarks.
Results of this quantitative exercise suggest first of all that trade
has major implications for the future of the Palestinian economy. It
indicates notably that transaction costs play a very important role in the
Palestinian trade performance, but also that trade policy matters.
Moving away from the present customs union framework may
present advantages, because the current23 fiscal and trade framework
creates harmful distortions, and generates great dependency on Israeli
security concerns. Adopting a more neutral regime would allow re-
balancing trade flows with the rest of the world, and is likely to generate
gains of specialization, additional welfare for the households, and
possibly lower transaction costs, at least for the exports which will not
anymore be destined to Israel. Other advantages not dealt with in this
paper are the possibility to trade new products with new partners, as
23 The Israeli Ministry of Finance has recently announced that the rate of purchase
taxes on 628 products are to be reduced (Al-Ayyam, August 15, 2000). This reform
might significantly reduce the desirability of adopting a more autonomous trade regime
in the sake of reducing the same taxes. As of the date of editing this paper, this very
last information remains to imprecise to be incorporated, but could represent an
important dimension of the future choice of the trade regime for West Bank and Gaza.



21
well as the opportunity to import goods with lower standards than those
required to enter Israel.
Welfare gains estimated here are already high in comparison with
the results generally reported in the literature using similar modeling to
assess the impact of trade liberalization24, and illustrates the great
dependency of the Palestinian economy on imports, as well as its low
degree of industrialization. But they still probably represent lower-bound
estimates of the total impact of trade liberalization on welfare and GDP
growth. As mentioned earlier, our results suggest that trade liberalization
could have a strong deflating impact on the price of investment, and a
positive impact on the capital rate of return, which combined should
provide strong incentives for further capital formation. Besides, we can
observe that trade liberalization has a positive impact on real wages,
which could in turn encourage a larger labor participation of the
working-age population on the domestic market.25 Finally, it is likely that
an increased diversification in the origin of imports, and therefore a
larger variety of accessible inputs, could allow producers to increase
productivity through selection of intermediate inputs that match more
closely their production requirements (Rutherford and Tarr, 2000). These
three effects could magnify the positive impact of trade liberalization that
we can observe in this paper with a static model.
However, the overall gains of such a departure from the present
system will depend to a very large extent on the design of the new trade
policy, and on how the Palestinian Authority decides to cope with the
inherent problem of trade deflection. Our analysis suggests that a Free
Trade Agreement is not necessarily the unique solution to be envisaged,
because the implementation of rules of origin it requires could reduce
significantly the potential gains of a trade liberalization. Measuring the
effective cost of implementing rules of origin goes beyond the scope of
this paper, but this dimension should retain particular attention before
deciding on the new trade regime. The alternative could take the form of
adopting a more neutral regime, which would not require to impose rules
of origin. In both cases, moving away from the present system would
bear the cost of lowering access to the Israeli market for Palestinian
exports. This cost should, however, diminish in the years to come, given
the commitment of Israel to further liberalize its trade regime.
24 Applied CGE modelling of the impact of trade liberalisation generally produces welfare
gains of about one-half to one percent of GDP, when constant return to scale are
assumed, as it is the case here. See Rutherford and Tarr (2000), for a presentation of
this literature.
25 The labor force participation rate is very low in WBG, around 40 percent. According to
Ruppert (2000), Palestinian workers may prefer to queue for jobs in Israel, and then
remain inactive for a while, if real wages in West Bank and Gaza are to low in
comparison to the ones expected in Israel.



22
Finally, a new regime which departs from the regime put in place
with the interim agreement could require customs infrastructures. This
physical capacity is presently non-existent.



23
References
Alonso, P., M. Alier, T. Baunsgaard and U. Erickson von Alimen (1999), West
Bank and Gaza Strip: Economic Developments in the FYve Years Since Oslo,
International Monetary Fund, Washington.
Arnon, A. (1996), "Links Between The Israeli and Palestinian Economies",
mimneo, June 19, Department of Economics, Ben-Gurion University, Beer-
Sheva.
Beghin, J., S. Dessus, D. Roland-Holst and D. van der Mensbrugghe (1996)
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Dessus, S. and A. Suwa (2000), Regional Integration and Internal Reforms in the
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Economic Co-operation and Development, Paris.
Erickson von Allmen, U. and K. Nashashibi (1999), The Trade Regime in the EPS
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Washington.
European Commission (1999), Evaluating the Paris Protocol, July, Brussels.
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Gallaway, M., C. McDaniel and Rivera (2000), Long-Run Industry-Level of U.S.
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Kanafani, N. (1996), "Trade Relations Between Palestine and Israel: Free Trade
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24
Rutherford, T., E. Rutstrom and D. Tarr (1997), 'Morocco's Free Trade
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25
Annex 1. Dispersion of Import Taxes Across Economic Activities
The model considers 31 activities and corresponding products. The following
table lists those activities, as well as the average tax on imports from third
parties (tariff duties plus purchase taxes) and the share of imports from third
parties for corresponding goods.
Product    Average Tax on Imports Share of imports from 3rd parties
1 Crops                        21%                           14%h
2 Other Agriculture            10%                           19%
3 Mining                        0%                          100%h
4 Other Food Products           9%                           35%
5 Olive Products                0%                          100%
6 Vegetable Products            8%                           84%
7 Meat and Dairy Products       0%                          100%
8 Animal Food                   6%                            9%
9  Beverages and Tobacco       49%                           18%
10 Textiles                    14%                          37%
11 Clothes                     25%                          47%
12 Leather Products            17%                          22%
13 Wood Products                8%                          21%
14 Paper Products               2%                          61%
15 Printing                     8%                          89%
16 Chemical Products            6%                           14%
17 Rubber                      11%                          37%
18 Non Metallic Products       17%                          27%
19 Stones                      11%                          35%
20 Basic Metal Products        20%                           35%
21 Equipment Goods             29%                          44%
22 Furniture                    4%                           82%
23 Other Manufacture           25%                           26%
24 Electricity and Water        0%                            0%
25 Construction                 0%                            0%
26 Commerce                     0%                            0%
27 Tourism                      0%                            0%
28 Transport                    0%                            0%
29 Communication                0%                            0%
30 Financial Services           0%                            0%
31 Other Services               0%                            0%



26
Annex 2. The General Equilibrium Model
This annex provides the technical specification of the computable general
equilibrium model used to assess trade policies in the Palestinian Economy. In
the equations which follow, the following indices will be used extensively:
i   Production sectors. j is an alias for i. N is the total number of
sectors/products
r   Represents trading partners. R is the total number of trading partners.
0   represents the initial situation.
We discuss first the following 40 generic equations which define the theoretical
model. We then describe the post-simulation equations which are used to
measure the impact of reforms in terms of welfare. We finally list the name and
dimension of each variable, the name and value of each elasticity, and describe
succinctly calibration mechanisms.
Supply
Production is based on a nested structure of Constant Elasticity of Substitution
(CES) functions. Each sector produces a gross output, XP, which given the
assumption of constant returns to scale is undetermined by the producer. It
will be determined by equilibrium conditions. The producer therefore minimizes
costs subject to a production function. Figure 1 depicts the nested decision
process in the choice of production factors: at the first level, the producer
chooses a mix of a value added aggregate, KL, and an intermediate demand
aggregate, ND. In mathematical terms, this leads to the following formulation:
minPKL1KL1 + PNiNDi
= [a i,~K~ +a aND/"J1'"'
s.t. XPi = [akli 'n-L'i  +nd,iN i 
where PKL is the aggregate price of value added, PN, is the price of the
intermediate aggregate, a,,, and and are the CES share parameters, and p is the
CES exponent. The exponent is related to the substitution elasticity, via the
following relationship:
¢jP =    P andap >0
Substitution elasticities reflect adjustment possibilities in the demand for
production factors originated from variations in their relative price. Note that in
the model, the share parameters incorporate the substitution elasticity using
the following relationships:
ald,i = (akJ )a'p and and,i = (and)i rip
Solving the minimization problem above, yields Equations (1) and (2).
Equation (1) determines the volume of aggregate intermediate demand, ND.
Equation (2) detennines the level of the value added demand KL. The CES dual
price of ND and KL, PX, is defined by Equation (3) and determines the aggregate
unit cost.



27
Figure 1: the nested CES production function
XPj (ayP)
NDj                 KLX (Wv)
XApi,j XApij XAPNJ i            Kj
Notes: Each nest represents a different CES bundle.
Intermediate demand of the product i by the industry
j, XApi,j, is further decomposed by region of origin
according to the Armington specification (cf. Figure 2).
The next level of the CES nest concerns, on the one side, aggregate intermediate
demand, ND, and on the other side, the KEL bundle. The split of ND into
intermediate demand is assumed to follow a Leontief specification, in other
words a substitution elasticity equal to zero. The demand for intermediate
goods is determined by Equation (4). The price of aggregate intermediate
demand is given by adding up the unit price of intermediate demand. This is
specified in Equation (5). Demand for each good is specified as a demand for the
Armington composite (described in more detail below), an aggregation of a
domestic good and an import good which are imperfect substitutes. Therefore,
while there is no substitution of one intermediate good for another, there will be
substitution between domestic demand and import demand depending on the
relative prices. The price of the Armington good is given by PA.
At the same level, the KL bundle is split between labor, L, and capital, K. The
optimization problem is similar to above, i.e. cost minimization subject to a CES
aggregation function. If W is the wage rate, and R is the price of capital, sectoral
labor and capital demands are given by Equations (6) and (7). The price of KL
bundle, PKL, is determined by Equation (8), which is the CES dual price. A, is
the total factor productivity level of sector j. Therefore factor demands are
expressed in efficient units.
Factor demand equations
PX  aJ
ND =andj PN     XP                                                     (1)
PX   eJ
KL= ak!J PKL                                                           (2)
PX =J[ad jPNT'y   + ak JPKLj1  ]                                       (3)
XApi,, = ai jNDi                                                       (4)



28
PN1 =ZaijPA                                                      (5)
PKL 1
Lj =al j      KL                                                 (6)
PKlJ 
K= aki[ RI2   KL                                                 (7)
PKL -a (W /2, '  + ax (Rit2 )i.u; t/(1-o;)                       (8)
Demand
Production generates income, both wage and non-wage, which is fully
distributed to the representative Palestinian household. Additionally, it receives
some net transfers from abroad. Equation (9) defines the disposable
household's income, YD. DT is an adjustment parameter that may become
endogenous, depending on the macro closure, as we will see below. If
exogenous, it is set to zero.
This income is allocated to consumption and savings using the Extended Linear
Expenditure System (ELES) specification. The consumer problem can be set up
as follows:
maxU = Epi ln(XAc, - 9J )+ In h{s-J
n                       n
s.t.PAXAc, +Hsav=YD and  Epi +iu, =1
i=l                     i=1
where U is the utility function, XAc, is consumption by commodity, S is
household saving and PA is the vector of consumer prices. Hsav can be thought
of as demand for a future bundle of consumer goods, and its price is the price
of investment, pL Solving the above optimization problem leads to the following
demand functions:
XAc.= 0 + PA,
PA.
Hsav = u Y* =YD- PAXAc,
n
Y = YD-I PAjO
j=I
Consumption is the sum of two parts, 0, which is often called the subsistence
rninac or floor consumption, and a fraction of Yw, which is often called the
supemumerary income. Y1 is equal to disposable income less total expenditures
on the subsistence minima.
Equation (10) defines supernumerary income, that is disposable income less
total expenditures on the subsistence minima. Consumer demand for goods
and services is given by Equation (11). Household savings is determined as a
residual and is given in Equation (12).



29
Households' demand equations
YD = (WL, + RKj) + ERETRH - DT                                    (9)
J               r
Y* =:YD - , PA1i.                                                (10)
XAci = °i + HiY I/PA,                                             11
HSav = YD -PA, XAc                                               (12)
Other domestic final demands include investment and government
expenditures. These final demand vectors are assumed to have fixed
expenditure shares. The closure of the final demand accounts will be discussed
below. Equations (13) and (14) respectively determine the government and
investment demand for each type of good, and equation (15) and (16) the total
values of government and investment purchases.
Otherfinal demand equations
XAgi = aiGTG                                                     (13)
XAii= =  IlnvExp/ ZPA1a1'                                        (14)
GExp  EPA, XAgi                                                 (15)
InvExp = 2 PA XAi1                                               (16)
Government
Government aggregate expenditures on goods and services are fixed in real
terms, and their total is TG. The Palestinian Government derives most of its
revenues from indirect taxes. Equations (17)-(19) list the different indirect taxes
paid on the consumption of domestic output and imports: value added taxes
(VAT) on domestic goods, duties and purchase taxes on imports, and VAT on
imports. The collection of these taxes plus some net transfers from abroad (e.g.,
the international aid) determine the government revenue (Equation 20).
Equation (21) defines the government budget surplus/deficit in nominal terms.
Avd, AVmn A' are  adjustment parameters that may  become  endogenous,
depending on the macro closure, as we will see below. If exogenous, there are
set to unity.
Government Equations
VATd = ZAVd ,vdPDiXDi                                            (17)
YTrade = ,   A'WPM , zr XMrr,                                    (18)
r i
VATm =AVmrimPMiXMi                                               (19)



30
GRev = VATd + YTrade + VATm + ERZTRc + DT                         (20)
SG = GRev - GExp                                                  (21)
Trade
The model assumes imperfect substitution among goods originating from
different geographical areas (the so-called Armington assumption). Imported
goods are not perfect substitutes for goods produced domestically. The demand
for domestic versus imported goods will depend on their relative prices and
their degree of substitution. The degree of substitution will depend on the level
of disaggregation of the commodities. For example, wheat is more substitutable
as a commodity than grains, which in turn are more substitutable than a
commodity called primary agricultural products. Actually, the Armington
assumption reflects two stylized facts: (i) Trade data shows the existence two-
way trade which is consistent with the Armington assumption: (ii) As well, and
related, the Armington assumption leads to a model where perfect
specialization, which is rarely observed, is avoided.
Import demand results from a CES aggregation function of domestic and
imported goods. To allow for the existence of multiple trading partners, the
model adopts a two-level CES nesting to represent the Armington specification.
At the top level, agents (consumers, firms) choose an optimal combination of
the domestic good and an import aggregate which is determined by a set of
relative prices and the degree of substitutability. Let XA represent aggregate
demand for an Armington composite, with the associated Armington price of PA.
Each agent then minimizes the cost of obtaining the Armington composite,
subject to an aggregation function. This can be formulated by:
min PDXD + PM XM
s.t.XA = [ad XDP + am XM P T}P
where XD is demand for the domestic good, PD is the price of obtaining the
domestic good, XM is demand for the aggregate imported good, PM is the
aggregate import price, a are the CES share parameters, and p is the CES
exponent. p is related to the CES substitution elasticity via the following
relation:
o*-1       1
as      I-p
At the second level of the nest, agents choose the optimal choice of imports
across regions, again as a function of the relative import prices and the degree
of substitution across regions. Note that the import prices are region specific, as
are the tariff and purchase tax rates. The second level nest also uses a CES
aggregation function. (cf. Figure 2). The CES formulation implies that the
substitution of imports between any two pairs of importing partners is identical.
The next table lists the solution of the optimization problem described above.
Equation (22) determines domestic demand for the Armington aggregate across
all agents of the economy, XKA. Equations (23) and (24) determine respectively,
the optimal demand for the domestic component of the Armington aggregate,
XD, and aggregate import demand, XM. Equation (25) defines the price of the
Armington bundle, PA, which is the CES dual price. Both the domestic price of
domestic goods, and the price of the aggregate import bundle are adjusted to



31
incorporate a value added tax, whose rate may differ between domestic and
import goods.
The next equations describe the decomposition of the aggregate import bundle,
XI  into its components, i.e. imports by region of origin. Each demand
component will be a function of the price of the exporting partner, as well as
partner-specific import tax rates. Equation (26) determines import volume by
sector and region of origin, XMr, where PMr is the partner specific import price,
in domestic currency and inclusive of import taxes (duties plus purchase taxes).
Equation (27) defines the price of the aggregate import bundle, PM, which is the
CES dual price. Equation (28) defines the domestic import price, PMr, which is
equal to the import price of the trading partner, converted into local currency,
and inclusive of the partner-specific import tax rate.
Figure 2: The demand for goods by origin
XAi (Qm)
XMj (arl)        XDi
XMri,l  XMri,r       XMri,R
Treatment of domestic production is symmetric to the treatment of domestic
demand. Export supply is modeled as a constant elasticity of transfornnation
(CET) function. Producers decide to allocate their output to domestic or foreign
markets responding to relative prices. Domestic producers are therefore
assumed to perceive the domestic market as different from the export market.
The reason is similar than for imports: a high level of aggregation. Further,
export markets might be more difficult to penetrate, forcing perhaps different
quality standards than those applicable for the domestic market, or more
simply different tastes. This formulation assumes a production possibilities
frontier where each producer maximizes sales, subject to being on the frontier,
and influenced by relative prices. The optimization problem is formulated
somewhat differently since the object of the local producer is to maximize sales,
not to minimize costs. We therefore have:
max PDXD + PEES
st.XP = [Yd XD + yeESA TI/
where XD is aggregate domestic sales of domestic production, ES is foreign
sales of domestic production (exports), with a producer export price of PE, XP is
aggregate domestic production with a producer price of PP, yare the CET share
parameters, and X is the CET exponent. The CET exponent is related to the CET
substitution elasticity, A, via the following relation:
A+1        1
A        ,1-I



32
Analogous to the Armington specification, producer supply decisions are
assumed to be undertaken it two steps. First, producers choose the optimal
combination of domestic supply and aggregate export supply. Then, an
additional step which optimizes export supply across trading partners. The top-
level producer supply decisions, in reduced form, are given by Equations (29)
and (30), where the share parameters are & and the CET substitution elasticity
is ot. Equation (31) is the CET dual price function, which determines sectoral
domestic output.
The second-level CET nest determines the optimal supply of exports to
individual trading partners, ESr. Equation (32) defines export supply by region
of destination. Equation (33) determines the aggregate export price, PE.
The next equation determine export demand by the regional trading partners,
and the export market equilibrium condition. Under the small-country
assumption the export demand elasticity is infinity, and the exporting country
faces a flat demand curve, i.e. the export price is fixed (in dollar terms), to
WPlNDEX. Equation (34) converts the domestic export producer price into the
price in local currency.
Trade equations
XA, = , XApij + XAci + XAg, + XAii                                (22)
1
Li~~~~~~~~~~o
XD           PA,    J    i                                         (23)
i  PDi 1+ Avd ~dj
I             PA (PM4+Avmm 0                                      (24)
PA, [3,6d (PD, (1 + Avd<jvd ))Ife + /67m (PM (I + AVmrn, ))-' ]    (25)
ri =(PMr, ,XM                                                  (26)
PM, = Ii(Pmrn)                                                     (27)
PMrri = ERWPMn (I + A'rri)                                        (28)
XD,            Xpi                                                 (29)
ESi =         XI i(p-                                            (30)
Pxi =[ad iPDg+ + a," iPE+:  +                                      (31)
ESrir = a?Q f r3) ESi                                             (32)



33
PE, = Ea (frPEriT)O a;                                           (33)
ir
PEr?r = ERWPINDEXir
Market equilibrium and macro closures
Labor and capital are fully employed, perfectly mobile, and their amount is
fixed. There is therefore a uniform wage rate across sectors, W, as well as a
uniform rental rate, R. Equations (34) and (35) define the market equilibrium on
each market.
Labor and capital market equilibrtum
EKi =K5                                                          (34)
i
L, =LS                                                           (35)
i
Three macro closures are considered. Govermnent real savings, RSG, are fixed
(Equation 36), as well as are government real expenditures, TG. Public receipts
thus adjust endogenously to achieve the predetermined government net
position. Four alternative compensating mechanisms are considered in this
version of the model: a lump-sum transfer from households to the government,
DT, an endogenous shift of the average VAT rate on domestic goods, an
endogenous shift of the average VAT rate on imports goods, an endogenous
shift of the average import tax rate.26 Equation (37) is the ubiquitous savings
equals investment equation. InvExp is the value of private investment
expenditures, whose value must equal total resources allocated to the private
investment sector: total household savings, government savings, and the sum
across regions of foreign capital flows. The last closure rule concerns the
balance of payments. First, we make the small country assumption for imports,
i.e. local consumption of imports will not affect the border price of imports,
WPM. Equation (38) is the overall balance of payments equation. The value of
imports, at world (border) prices, must equal the value of exports, at border
prices plus net transfers and factor payments, and plus net capital inflows.
Macro closures
RSg = SG / P                                                     (36)
InvExp = Hsav + ERESfr + SG                                      (36)
y    ~~~~~~~~r
ERWPMrXMr, = E  EPErwESrr + ERE(Sfr + TR + TRH)                  (37)
r    i          r  i            r
The following equations are used to calculate the investment price and domestic
price indexes which are respectively used to inflate real savings and real
government savings. The numeraire of the model is the exchange rate, ERP
26 The closure rule used to obtain the results presented in the text consists in shifting
both the VAT on imports and domestic goods.



34
Price indexes
Z PAi XAii
pi =  i                                                            39
EPAi,o Xii                                                   (9
WLe, +  RKid
EWOL +RK                                                       (40)
i       i
Finally, we describe below the measure of households' welfare used in this
model to assess the impact of simulated reforms. The first formula is derived
from the household utility function, and represents the expenditure function at
the current level of consumption (i.e. current utility), but at base year prices.
Typically, this is written as E(po, u). A measure of welfare, EV, is to calculate the
difference between the expenditure function at current prices and utility, i.e.
E(p,, u) and E(po, u), once accounted for the change in disposable income.
Welfare measures
E(p.,u) = PAZ0a; + exp pEi Int P4, (XAc, - 6i )j + u,I Pni I Hsav1J
EV = YD- YDo + E(po,u) - E(p, u)
The last table lists the name, definition and dimension of each endogenous
variable. N is the number of products and R the number of trading partners.
Variable Name       Description                             Dimension
PX,                 Unit production cost                            N
PD,                 Domestic producer price                         N
PEi                 Export price                                    N
PN,                 Aggregate price of intermediate demand          N
PKL,                Price of value added                            N
W                   Wage                                             1
R                   Rental rate of capital                           1
PA                 Armington price                                  N
PMi                 Import price                                    N
PEri,               Export price by region                        N R
PMr,,              Import price by region                         R N
cpi                 Consumer price index                             I
P                   Domestic price level                             1



35
XPJ                Sectoral output                               N
ND,                Sectoral aggregate intermediate demand        N
KLj                Sectoral aggregate value added                N
Li                 Sectoral labor demand                         N
Ki                 Sectoral capital demand                       N
XApij             Intermediate demand by product and sector     N N
XAcj               Household consumption by product              N
XAii               Investment expenditure by product             N
XAgi               Government expenditure by product             N
XA                 Arnington                                     N
XM,                Imports                                       N
XMr,               Imports by region                            R N
ESi                Exports                                       N
ESFr               Exports by region                            N R
YD                 Household income                               1
y *                Household supernumerary income                 1
HSav               Household saving                               1
GExp               Government nominal expenditures                1
GExp               Investment nominal expenditures                1
VATd               VAT revenues on domestic goods                 1
VATm               VAT revenues on imported goods                 1
Ytrade             Import tax revenues                            1
GRev               Government revenues                            1
SG;                Government saving                              1
Ks                 Capital supply                                 1
LS                 Labor supply                                   1
Ali                Sectoral productivity level                   N
Once dropped the balance of payments equation (the balance of payments
constraint is dropped from the model due to Walras' Law), the number of
variables/equations equals N(18 + 4R + N) + 14. The number of exogenous
variables is smaller. It includes world prices of exports and imports by region,
WPINDEXirI WPMi' foreign savings, SfiI net transfers to the government and
households, TRG,TR', real government expenditures and savings, TG,RSg, and
VAT and import tax rates, vd, vtmn,rI. In this static model, capital supply, labor
supply and sectoral productivity levels are considered exogenous as well.



36
Elasticities and Calibration
Most CGE models contain many more parameters that can be estimated using
traditional statistical inference, and the one used here is of no exception. The
calibration of the parameters of the model hence relies on two set of
information. The first one is given by the input/output matrix, which reports
the values of the flows modeled. The second one is a set of behavioral
parameters, such as elasticities, whose values are taken from the relevant
theoretical and/or empirical literature. Combining these two sets allows us to
calibrate the model.
The following table lists the name, description and value of the elasticities used
in the model.
Elasticity             Description                                  Value
up                  CES elasticity between ND and KL               0.0
a,                  CES elasticity between K and L                  1.0
orm                 First level Armington elasticity               2.0
07w                 Second level Armington elasticity              5.0
vi'                 First level CET elasticity                     5.0
viOZ               Second level CET elasticity                    8.0
In addition, we impose the values of income elasticities by product, q,, which
vary from 0.5 for basic products to 1.2 for services.
Fixing the value of these elasticities allows to calibrate the households'
expenditure system, as follows. From the demand equation describe previously,
we can derive the income elasticities:
17i =- piY
PA, XAci
and therefore the values of ,uA and 1u5, if we set the price vector to any given
value (the model is homogenous). This in turn allows us to identify the vector of
subsistence minima, 0,, by solving a system of n equations of the type:
PA, XAc = OiPA, + uj(YD -  PAi j 
The second set of parameters to calibrate is the set of share parameters, which
appear in the CES and CET functions. We rely again on the property of
homogeneity of the model to calibrate these parameters. Let's take the import
demand by origin as an example (cf. Equation 26). From the first order
conditions of the cost-minimization program we can write:
,5r = n ( n 
nXMri r PMi )



37
Let's fix the world price of import in local currency to 1. The domestic price of
imports by origin, inclusive of import taxes, is therefore equal to 1+ rZ". The
volume of imports by origin XMrr,, is the one reported in the I/O matrix, which
distinguishes by product and origin the values of imports at world prices from
the duties collected on it. Now let's fix the average domestic price of imports to
1. XMi is then equal to E (1+ r )XAMr, . Therefore we have:
r
=ir    XMrri
Z(l+zrZ)XMrri    r
r






MENA Working Paper Series
No. 1    Has Labor Migration Promoted Economic Integration in the Middle East?
June 1992. Nemat Shafik, The World Bank and Georgetown University.
No. 2    The Welfare Effects of Oil Booms in a Prototypical Small Gulf State.
September 1992. Ahmied Al-Mutuwa, United Arab Emirates University and
John T. Cuddington, Georgetown University.
No. 3    Economic and Social Development in the Middle East and North Africa.
October 1992. Ishac Diwan and Lyn Squire, The World Bank.
No. 4    The Link Between Trade Liberalization and Multi-Factor Productivity:
The Case of Morocco.
February 1993. Mona Haddad, The World Bank.
No. 5    Labor Markets in the Middle East and North Africa.
February 1993. Christopher A. Pissarides, The London School of Economics and
Political Science.
No. 6    International Competitiveness of the Private Industry and the Constraints
to its Development: The Case of Morocco.
June 1993. Hamid Alavi, The World Bank.
No. 7    An Extended RMSM-X Model for Egypt: Quantifications of Market-Oriented
Reforms.
September 1993. Karsten Ninb Pedersen, The World Bank.
No. 8    A Report on the Egyptian Tax System.
October 1993. Mark Gersovitz, Roger H. Gordon and Joel Slemrod, The World Bank.
No. 9    Economic Development and Cooperation in the Middle East and North Africa.
November 1993. Ishac Diwan and Lyn Squire, The World Bank.
No. 10    External Finance in the Middle East: Trends and Prospects.
December 1993. Ishac Diwan, John Underwood and Lyn Squire, The World Bank.
No. 11    Tax Incidence on Agriculture in Morocco (1985-1989).
April 1994. Jean-Paul Azarm, CERDI, University of Auvergne, Clermont-Ferrand
(France) ,et CSAE, Oxford (U.K.).
No. 12    The Demographic Dimensions of Poverty in Jordan.
August 1994. Chantal Worzala, The World Bank.
No. 13    Fertility and Family Planning in Iran.
November 1994. Rodolfo A. Bulatao and Gail Richardson, The World Bank.
No. 14    Investment Efficiency, Human Capital & Migration A Productivity Analysis
of the Jordanian Economy.
May 1995. Gaston Gelos, Yale University, Department of Economics.



No. 15    Tax Effects on Investment in Morocco.
August 1995. David Sewell, Thomas Tsiopoulos and Jack Mintz, The World Bank.
No. 16    Reconstruction in Lebanon: Challenges for Macroeconomic Management.
April 1999. DanLela Gressani and John Page, The World Bank.
No. 17    Towards a Virtuous Circle: A Nutrition Review of the Middle East and
North Africa.
August 1999. Regional HNP Knowledge Management The World Bank.
No. 18    Has Education Had a Growth Payoff in the MENA Region?
December 1999. Lant Pritchett, The World Bank.
No. 19    RationalzIng Public Sector Employment in the MENA Region.
December 2000. Elizabeth Ruppert Bulmer, The World Bank.
No. 20    Achieving Faster Economic Growth in Tunisia.
December 2000. Auguste T. Kouame, The World Bank.
Copies of MENA Working Papers may be obtainedfrom Ms. Gena Gorospe, MNA VP, Ph: (202) 473-2623.