Fences, Walls, and the Development of Cities: The Long-Term Effects of the Israeli-Palestinian Land Obstacle

The short-run effects of the security land obstacle on both the Palestinian economy and the level of terror are obvious. This article analyzes its long-run economic effects. A theoretical model of two cities with heterogeneous population and two sectors with a Learning-by-Doing process in one of the sectors is presented, showing that even if both cities can develop when independent, introduction of commuting between the two cities can cause the city that was initially less developed to deteriorate and the other to prosper. The relevance to the Israeli-Palestinian case is established. The obstacle will force the more talented Palestinians to work in their own cities and will therefore enable the development of technology-oriented industry in the Palestinian economy through a Learning-by-Doing process. In the long run, the Palestinian economy will gain from the obstacle. Israel, on the other hand, in case of a conflict in the far future, might find itself facing a more developed enemy.