The political economy of Israeli-Palestinian interdependence

The Israeli and Palestinian economies are asymmetrically interdependent. So me scholars argue that the Palestinian economy cannot be viable alone. Othe rs believe that economic links with Israel will promote peace. Supporters o f separation argue that these links distort Palestinian development. I show that the current interdependence is associated with a cyclical Israeli-Pal estinian violence and Palestinian economic decline. Assuming that an indepe ndent Palestinian state forms in most of the West Bank and Gaza Strip, I ar gue that Israeli-Palestinian relations require economic separation to be st able. Economic separation will deteriorate Palestinian welfare in the short run. Policies to make it viable are considered.