Abstract

In the five-year period 1994–98, the Palestinian economy experienced challenges that would have been daunting even for more developed and robust economies.1 Population growth was among the highest in the world, creating substantial demand for basic social services. The policy and regulatory framework in which the private sector operated was significantly revamped. Some restrictions on the Palestinian economy became tighter, and closures, imposed by Israel for security concerns, led to a significant slowdown in economic activity.2 The cumulative effect of permits, closures, and changes to the policy and regulatory framework, together with uncertainty regarding final status, created an environment of extraordinary uncertainty for the private sector. Given the circumstances, however, the economy has shown a remarkable degree of resilience, helped by substantial improvements in infrastructure and donor aid on a very large scale. After a deep recession in 1995-96 associated with periods of severe closures, economic activity picked up, especially in 1998, and the rate of unemployment declined markedly from its peak two years earlier. For the period under review as a whole, however, economic growth did not keep pace with population growth, and per capita income declined substantially.