The THE NEXUS OF TRADE, EMPLOYMENT AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM PALESTINE

Abstract

The economies, trade and employment in the Palestinian territories (PTs)  in the Gaza Strip and West Bank have undergone numerous shocks and instabilities over the past four decades.  Palestinian External trade experienced numerous difficulties and in particular Israel  imposing for restriction on Palestinian trade with the neighboring countries and the rest of the world as a whole. Meanwhile, employment rates in PTs decreased sharply by Israeli restrictions which imposed on Palestinian labor movement into Israel since 1994 and intensified with the Palestinian uprising in 2000 year., This study uses the cointegration and Granger causality tests to examine both the long run and short run relationships among trade, employment and economic growth of Palestine for the time period 1968-2017 . The econometrics results based on vector error correction models (VECM) confirm the existence of long run relation between trade, employment and economic growth and show that both employment and GDP are main determinants of trade but not trade and GDP determinants of employment or trade and employment determinants of GDP.  Causality tests confirm VECM results that changes on economic growth in the long run cause change in trade  in the short run. By reconciling causality results with that of VECM, we conclude an existence of marginal causality runs from GDP to employment and from trade to employment.