Why Are Israelis So Much Wealthier Than Their Palestinian Neighbors? (and yes, there’s a bit more to it than “culture”)

Matthew Green — Sat, 11 Aug 2012 00:30:05 +0000

Romney was absolutely correct when noting that Israel’s GDP per capita is significantly higher than that in the Palestinian territories. But he was actually way off on the specifics: in suggesting that Israelis produced roughly twice as much as do the Palestinians, he vastly understated the disparity. The U.S. Central Intelligence Agency estimated Israel’s per capita GDP at about 10 times (or 1000% more) that of the Palestinians.

In 2011 Israel had a per capita GDP of roughly $31,000, while in 2008 — the last year the CIA listed data for the Palestinians — the per capita GDP. of the West Bank and Gaza combined was about $3,000.

That’s a 1000% difference!

In suggesting that the economic disparity can be attributed to the “culture” of the two peoples, Romney made no reference to a handful of pretty significant factors that, it’s fair to say, have a tad bit of influence on economic conditions in both areas:

Source: Central Intelligence Agency

1. The West Bank, where the majority of Palestinians live (about 2.5 million of them), has been under tight Israeli military occupation and economic control since 1967, when Israel captured the region in war. According to the CIA: “Israeli closure policies continue to disrupt labor and trade flows, industrial capacity, and basic commerce, eroding the productive capacity” of the economy.

2. The Gaza Strip, home to roughly 1.7 million Palestinians, is a region mired in deep-seeded poverty. Why? According to the CIA : “Israeli-imposed border closures, which became more restrictive after the radical group Hamas seized control of the territory in June 2007, have resulted in high unemployment, elevated poverty rates, and the near collapse of the private sector that had relied on export markets.” The agency adds that “changes to Israeli restrictions on imports in 2010 resulted in a rebound in some economic activity, but regular exports from Gaza still are not permitted.”

3. U.S. foreign aid: In 2011, Israel received about $3 billion from the U.S.. The Palestinian Authority got $147 million. That’s less than half a percent of what Israel received. And, of course, more money flowing into a nation’s economy means more capital for investment. Which, in turn, means more production, yielding higher GDP per capita.

PRI's The World: Palestinian Economic Growth Dependent on Israeli Relations Download

And then there’s the Daily Show’s take on it:

Oh No He Didn’t! Wait, But What Does GDP per Capita Actually Mean?

Matthew Green — Sat, 11 Aug 2012 00:24:00 +0000

Credit: Wikimedia Commons

During his recent trip abroad, Republican presidential nominee Mitt Romney caused a political stir in Israel (among other places he went) when he said that “culture makes all the difference” in explaining the vast difference in GDP per capita between Israel and its Palestinian neighbors.

And it’s not hard to understand why Palestinians might have been a bit ticked off by the remark: it’s basically saying that you’d be more financially successful if you changed your lifestyle. Harder to grasp, though, is the economic concept that Romney used in his comparison.

GDP per capita: One of those terms journalists and politicos throw out there as though it was something that normal humans conversed about at the dinner table. But what does it actually mean? And how is it relevant – or not – in determining a country’s well-being?

Put simply, Gross Domestic Product (GDP) is one (of many) ways to measure a nation’s income and level of productivity. The textbook definition will tell you: it’s the the market value of all goods and services that a country produces in a given period of time (generally a year).

In normal speak: it’s all the (legal) things that are produced and sold in a country, and all the wages and profits that are earned. Basically, an indicator of economic health and wellness.

GDP per capita, then, is the total GDP value divided by the number of people who live in that country.

So, for instance, let’s imagine your family’s house is a nation unto itself (work with me here): your dad’s a carpenter and makes, say, $50,000 a year selling his furniture. Your mom’s a lawyer and makes a salary of $70,000/year. You, however, are still in school and not working and thus, not making any income (freeloader!). So, the GDP of your household would be the sum of all those incomes: $120,000.

The GDP per capita, then, would be $120,000 divided by the number of people under your roof – the three of you. So … GDP per capita = $40,000.

GDP per capita is often used as a rough estimation of a nation’s general standard of living; the higher the GDP, the higher that standard. Of course, just looking at that figure alone can be pretty misleading, especially if there’s a lot wealth inequality within a particular country. Remember, that GDP per capita is just an average – it’s the income of a representative individual in a given country.

Take the United States, for instance: GDP per capita here is one of the highest in the world. And although the overall standard of living here is pretty high compared to a lot of other countries, there are also a lot of Americans who live in poverty.

Check out this explanatory animation on GDP per capita (I know, I know - it’s econ – but it’s kind of interesting!)

The Lowdown » GDP per capita

Why Are Israelis So Much Wealthier Than Their Palestinian Neighbors? (and yes, there’s a bit more to it than “culture”)

And then there’s the Daily Show’s take on it:

Oh No He Didn’t! Wait, But What Does GDP per Capita Actually Mean?