Should I trade or should I go (to war)? Lessons from the Second Intifada*
By Dr Sami - April 11, 2023
Do trade shocks affect conflict? The evidence on this question has so far focused mainly on commodity price shocks. This paper moves beyond this focus and uses data from the entire export and import baskets to examine whether changes in Palestinian trade in the second half of the 1990s affected the intensity of the subsequent Palestinian uprising (‘second Intifada’). The findings suggest that an increase of USD 10 million in Palestinian exports of a sector employing 10 percent of the locality’s private employment reduces conflict intensity in that locality by between 11.5 and 13.8 percent. On the other hand changes in Palestinian and Israeli imports have no significant impact on conflict. The results are robust to instrumenting these trade shocks with factors exogenous to Palestinian localities, including the emergence of new global suppliers and the unilateral trade opening of Israel. The findings can be better explained by the opportunity cost mechanism than by the resentment of Palestinians towards Israel due to the loss of the Israeli market. The effects are particularly large in localities with a higher share of refugees and with higher unemployment rate, pointing to the importance of grievances in determining the reaction to a trade shock.