Elsevier

Food Policy

Volume 42, October 2013, Pages 96-105
Food Policy

Consequences of unintended food policies: Food price dynamics subject to the Israeli–Palestinian conflict

https://doi.org/10.1016/j.foodpol.2013.07.007Get rights and content

Highlights

We study the effects of the Israeli–Palestinian conflict on food price dynamics.

Security policies yield unintended externalities for food trade.

Temporary movement restrictions define the regimes of the switching time series model.

Israeli and Palestinian prices of main trading products and markets are integrated.

Movement restrictions temporarily cut off markets from each other and harm welfare.

Abstract

Israel’s imposition of military security measures in the Palestinian territories as a consequence of the long-lasting violent conflict between them has negative economic effects on all parties concerned. One crucial outcome is the limited ability to carry out trade, which brings about welfare losses. Conflict-induced policies such as security measures can result in sizable unintended externalities that shape the markets of and the trade in food. We assess the dynamics of daily wholesale prices of food produced in Israel and the West Bank that is traded between them and is therefore subject to restrictions on movement. To do so, we suggest a regime switching cointegration model which is estimated using a novel extension of the Johansen estimation method. We find that the two major wholesale markets of the two regions are integrated with regard to these main trading products. Deviations from price equilibria are quickly adjusted. The model suggests that movement restrictions temporarily cut off markets from each other. Implications of conflict-induced closures for welfare depend on the direction of trade and are harming both Palestinian and Israeli consumers.

Keywords

Agricultural trade
Exogenous regime-switching
Israel
Palestinian territories
Price transmission
Violent conflict

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