​To what extent do changes in the economic conditions of the local population influence conflicts? We address this question by providing the first systematic evidence on the impact of changes in the Palestinian public and private sector wage bills on the intensity of the Israeli-Palestinian conflict during and after the second Intifada. We find that districts in the West Bank and Gaza which experienced larger increases in the public sector wage bill experienced relatively higher levels of conflict in the following quarter during the second Intifada. This positive relation between public sector wage bill and conflict disappears in the West Bank at the end of the period of intense conflict. On the other hand increases in the private sector wage bill are associated with reduction in violence although this result is not consistent across specifications. We propose some possible explanations for these findings. Some Israeli imposed security measures, such as the West Bank Wall and security arrests appear to be associated with an intensification of the conflict even after the end of the second Intifada.

Massimiliano Calì, Sami Miaari and Belal Fallah