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The Ethnic Conflict Research Digest

1999, Vol. 2 No. 2 .

The Divided Economy of mandatory Palestine
Jacob Metzer

(Cambridge: Cambridge University Press, 1998).
275pp. Index. Bibl. Hb.: ISBN 0-521-46550-8.

This is an extremely useful review of the dual economy - Jewish and Arab - in Palestine during the years in which it was a British Mandatory territory. Anyone specializing in economies sharply divided by ethnicity will find it of interest. It contains a stimulating review of the arguments about what we mean by dual or divided economies as well as a close review of what we know about economic change in Palestine in the inter-war period.

Metzer's employs a fairly straightforward economic definition of a dual economy: the circuits of trade, employment and investment in one community were largely distinct from those of the other and there were significant differences in factor endowment between the communities. High levels of immigration and capital import drove economic growth in the Jewish economy to unprecedented levels before World War II and still largely without equal since. The Arab community was by no means stagnant but did not experience the constant inflow of human and physical capital that accrued to the Jewish community.

Students of institutions will note that the book pays appropriate attention to the role of Zionist institutions in making economic dualism work. There is a careful analysis of two controversial topics in the historiography: the maintenance of wage differentials and the economic and social consequences of Jewish purchases of Arab land. Metzer's technical discussions are clear and highlight the institutional innovation that allowed Jews to purchase land in a free market and then hold it so that it could not be sold back. Technically this suggests the possibility of modeling land purchases as a Markov process in which Jewish ownership is an absorbing state; it would be interesting to evaluate Palestinian fears that Jews would buy up the entire country by estimating relevant transition matrices.

Beyond its status as an archetype of economic ethnic dualism, Metzer's careful computation of factor inputs makes us aware of another dimension of the divided economy of Palestine. In the debate about contemporary economic development a dispute has arisen about the relative importance of factor inputs as opposed to growth beyond the measured inputs themselves, so-called total factor productivity. The experience of the Palestinian economies is not conclusive but it is certainly suggestive that very high levels of investment are crucial. Whatever the sources of total factor productivity (from learning by doing to increasing returns to "embodied" technological change), it only works if levels of factor investments are high for prolonged periods.

Metzer concludes with a brief glance at the present situation in Israel and the Occupied Territories. His conclusions, though understated, are not encouraging not least because he suggests that Israeli economic policy toward the territories now "resembles, more than any other facet in the history of Arab-Jewish economic coexistence, the economic dynamics observed in the European settlement colonies" (p. 211).

Ellis Goldberg

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