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Abstract
The economy of the West Bank and Gaza Strip faced a difficult external environment in 1997. Two intensified (and at times total) border closures that were triggered by security incidents in Israel jolted the economy, which was already weakened by high unemployment and permanent border controls that raised transportation and other costs, distorted investment incentives, and undermined competitiveness. The closures, coupled with the lack of progress in the peace process, gave rise to a profound pessimism concerning the economic prospects of the West Bank and Gaza Strip. The loss in confidence constrained both private investment and consumption, while public investment continued to be constrained by a broad array of factors, most of which reflected the unfavorable political and security situation. As a result, GNP increased by only 2 percent in real terms, implying a significant drop in per capita income.
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