How Does Israel Absorb International Aid Meant for Palestinians

Abstract

International aid to Palestinians is one of the highest in the world. Meanwhile, the need for such aid is on the increase. Under the strict occupation policies, whether political, economic or military, the majority of international aid is absorbed by the Israeli economy render the Palestinian economy completely dependent. Four simultaneous equations were estimated using the "Three Stage Least Squares" to detect the impact of Official Development Assistance (ODA) on growth, domestic savings, imports from the greater world and Israel. Available yearly time series data for Palestine from 2000 to 2019 used within the model were estimated. We estimate the international aid propensity to imports from the greater world and Israel, besides the impact on growth and domestic savings. We found that ODA is associated negatively with growth, crowds out domestic savings and increases imports from Israel more than from the greater world. ODA marginal propensity to import from Israel is twice and half higher than the marginal propensity to total imports, which indicates the influence of economic accords and occupation procedures. In addition, Israel absorbs directly one-fourth of each dollar donated to Palestinian economy, and higher absorption is potential in the long run. Correlation has been measured between ODA and Palestinian trade deficit with Israel, and we found that more than 87% of aid ends up in the Israeli economy. A series of recommendations were provided including ending of the unilateral trade union imposed by Israel.