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| Volume IX, September 2002, Number 3 |
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| EXCERPT: Winners and Losers in the Middle East:
The Economics of "Peace Dividends" |
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| Ali F. Darrat and Sam R. Hakim |
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Dr. Darrat is the Premier Bank endowed professor of finance and professor of economics, Department of Economics and Finance, at Louisiana Tech University in Ruston, Louisiana. Dr. Hakim is vice president of Energetix LLP, in Houston, Texas.
From the Camp David accords and
the first handshake between
Israelis and the PLO on the White
House lawn in September 1993, supporters of the Oslo agreement had predicted a windfall "peace dividend" for Arabs and Israelis. In the grand thinking of the architects of the peace process, economic benefits would replace territorial claims and ambitions as the foundation for, and the driving force of, a "new Middle East." Arabs viewed the peace process as an opportunity to enhance their flagging economies, while the Israelis hoped their economy would prosper through increased international trade.
THE ECONOMICS OF THE PEACE PROCESS
The concept of a Middle East trading bloc is typically seen as a significant component of the economic relations that will be necessary to sustain peace in the region. At the center of this argument is the importance of liberalized trade and integrated markets necessary to establish sustained peace in the region, as well as to maximize allocative efficiencies for the region's productive resources. The mutual benefits of trade and expanding interdependence is thought to create the "vested interests" of peaceful and cooperative relations.1 The exact form of this increasing economic interaction was left for negotiations. The possibilities ranged from complete economic unification involving no trade barriers to more limited forms of economic interaction.
The potential for the Middle East to become a lucrative market makes a stable economic environment a worthwhile goal, and is attributable to several elements.2 First, a peace dividend might be derived from a substantial decrease in defense expenditures and the ensuing release of those resources for productive uses. Second, increasing direct investment should reduce the region's cost of capital, a factor that could boost domestic credit. Third, the ensuing development of intra-regional trade specialization and trade based upon comparative advantages would create additional sources of employment and investment opportunities and stimulate economic growth as the region uses its resources more efficiently. Finally, cooperation in joint economic projects, particularly in the improvement of the region's water and transportation infrastructure, would provide the necessary foundations for sustainable growth. All of these factors would improve the productivity, living standards and growth of the region as a whole, and should translate directly into a higher per capita GDP.
Placing the peace process under scrutiny, we ask three questions. (1) How did it measure up in economic terms? (2) Have peace dividends accrued more to one side at the expense of the other? (3) How significant have the dividends been for the region as a whole and for each country individually?
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1 Calls for Regional Bodies to Achieve Security and Free Trade, King Hussein of Jordan, Address at the opening ceremony of UNESCO's International Symposium on the Future of the Mediterranean After the Peace Process (1995).
2 New Era Dawns for Markets on the Move, Middle East Business Weekly, MEED, April 14, 1995.
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