Modelling Political Instability and Economic Performance: Israeli Investment during the Intifada

Abstract

I construct a model of investment in Israel that incorporates both standard economic factors and indicators of political instability and unrest. The model is used to estimate both the extent to which the Intifada has depressed Israeli investment in different kinds of capital good, and the size of the corresponding ‘peace dividend’.

What Causes Changes in Opinion About the Israeli—Palestinian Peace Process?

“…There is also a growing literature that identifies specific economic costs relating to the conflict. The conflict impacts on tourism (Fleischer and Buccola, 2002), savings (Fielding 2003a;Eckstein and Tsiddon, 2004), investment (Fielding, 2003b) and the stock market (Eldor and Melnick, 2004 Nachtwey and Tessler (2002) find a high correlation between the belief that peace will be of economic benefit and support for reconciliation with the Palestinians.…”

The economics of terrorism: A synopsis

“…Such a severe shock, concentrated in time, is likely to affect consumption and investment in response to a willingness to free resources for other uses. In fact, there are noticeable decreases in consumption after terror attacks (Eckstein and Tsiddon, 2004;Fielding, 2003a) and decreases in investment (Eckstein and Tsiddon, 2004;Blomberg, et al, 2004a;Fielding, 2003b), the latter a consequence of a crowding-out effect in response to increases in public spending. International capital and trade flows are also likely to decrease (Abadie and Gardeazabal, 2005;Enders and Sandler, 1996, for capital flows; for trade, see Walkenhorst and Dihel, 2002;Nitsch and Schumacher, 2004).…”

Making Do with What You Have: Conflict, Firm Performance and Input Misallocation in Palestine

“…2 The economic consequences of conflict and terrorism have been investigated at the macroeconomic level by estimating its impact on aggregate investment and output. Evidence robustly shows that violent conflict is associated with output fall (Cerra and Saxena 2008;Chen, Loayza, and Reynal-Querol 2008), lower investment (Fielding 2003;Eckstein and Tsiddon 2004) and lower growth (Alesina,Özler, Roubini, and Swagel 1996;Alesina and Perotti 1996;Ades and Chua 1997;Collier 1999). A few studies investigate the effect of a violent conflict at the micro level.…”