Palestinians living in the West Bank and Gaza have faced a series of economic shocks since the Gulf war. Each shock alone would have been difficult to weather, but combined they have led to a considerable worsening of economic conditions. These shocks included the Gulf war, Israeli closures of the West Bank and Gaza, and the influx of diaspora Palestinians after the Oslo accords. While the first two clearly had negative consequences, the last is more complex. The repatriation of diaspora Palestinians has led to a reversal of the “brain drain,” and an influx of much needed capital. Yet the impact of this spending has been disappointing and widening economic inequality may have resulted.
The Gulf War and Closure
The Gulf war reduced to a trickle Palestinians’ access to better-paying employment opportunities outside the West Bank and Gaza. This curtailing of migration options coincided with one of most extensive closures ever imposed by Israel on the territories. During the Gulf war, Israeli closures of the West Bank and Gaza led to economic losses averaging $1.8 million in wages and $850,000 in exports per day, according to World Bank estimates.  Immediately after the war, the number of Palestinian workers allowed to work in Israel returned to pre-war levels. However, closures continued and employment opportunities in Israel have steadily declined. Whereas before the Gulf war 30 to 40 percent of the Palestinian labor force was employed inside Israel, UNSCO estimates suggest that by 1998 that figure dropped to 17 percent. 
Those directly affected by the closure were primarily young men who had been employed in Israel’s construction, service and agricultural sectors. In addition, entrepreneurs and self-employed contractors who conducted business inside Israel were prohibited from pursuing those options after closure. The simultaneous expulsion of Palestinians from the Gulf, many of whom were unable to repatriate their savings and capital, exacerbated the impact on local labor markets. In 1991-1992, for instance, districts with higher return migration, such as Hebron, the northern Gaza Strip and Tulkarm saw their unemployment rates increase by 2 percent more than districts like Ramallah and Bethlehem where return migration was decreasing.  Although those directly impacted were unemployed workers, the entire economy deteriorated as a result of this economic strain. Fewer jobs and lower earnings led to less consumption, in turn affecting local businesses and industries as the demand for their products declined. As a result, per capita GDP (average income per person) dropped by about 14.2 percent between 1993 and 1995.  In addition, future migration possibilities were largely curtailed.
Aftermath of the Oslo Accords
With the economy reeling from the dual shocks of the Gulf war and the closures, the Oslo accords brought about a new influx of diaspora Palestinians.  This third shock has had both positive and negative features. From a nationalistic perspective, repatriating Palestinians is an exciting and positive step. In addition, returnee capital may be key to jump-starting the Palestinian economy. How has the influx of returnees affected the West Bank and Gaza?
Estimates of the number of post-Oslo returnees range from 40,000 to 100,000.  The two most prominent groups of “returnees”  are the “Tunisians” and the Palestinian-Americans. In Gaza, many of the returnees are “Tunisians”: PLO officials formerly based in Tunisia, allowed into the territories to staff the Palestinian National Authority (PNA). In the West Bank, many of the post-1993 returnees come from the United States. Unlike those who returned legally under the provisions of the Declaration of Principles, many of the Palestinian-Americans lost their residency rights while abroad and were able to come back only by skirting Israeli laws. These returnees often have foreign passports and enter with tourist visas or with family reunification papers. While not officially repatriated, many Palestinian-Americans are attempting to reintegrate into Palestinian society and the economy by building houses and investing in businesses, particularly in the restaurant and tourist industry.
The impact of the post-Oslo returnees on the labor market has been less severe than earlier repatriations, since most have moved into newly created public sector positions in administration, security and related areas. Twelve thousand positions in the Palestinian police force, for instance, went to “returnees.”  In addition, many returnees were successful in their businesses and professions in the diaspora and have come with ample amounts of capital and skills that could be vital in improving the Palestinian economy. Recently repatriated Palestinians have strong links with other Palestinians in the diaspora, as well as to the global economy. For example, investment groups such as the Palestine Development and Investment Company (PADICO), funded by local and diaspora capital, seek to generate employment not only in the service and construction sectors, but also in light manufacturing and infrastructure development. Economic theory suggests that such investments, especially in infrastructure (including transportation and communications) are vital to employment creation and sustained economic growth.
The repatriation of many economically successful entrepreneurs and educated Palestinians suggests a reversal of the “brain drain,” and may bring in money earned abroad, which can stimulate the economy. But the type of returnee investment is an important consideration. UNSCO reports that 80 percent of “investment” in the region is in construction of private dwellings,  which provides jobs in the short run, but is not a solid basis for long-term economic growth. In addition, despite inflows of returnee spending, not to mention foreign aid, reports indicate that unemployment rates have remained high, averaging from 20 to 30 percent in 1997. 
Social and Political Repercussions
While the repatriated Palestinians may provide an economic boost to the territories, the benefits have been unevenly distributed. Tension between returnees and locals has emerged, particularly as returnees are generally better off economically. The corruption scandal that has plagued the Palestinian Authority for the past year alleges that $326 million in public funds were squandered in 1996.  People also resent the special privileges, like VIP passes to go between the West Bank and Gaza Strip, that are given to returnees, while local workers are not being allowed to get to their jobs in Israel. Many of the charges of corruption and indifference to the suffering of the Palestinian people have been directed against the Tunisians, especially in Gaza. As foreign aid flowed toward NGOs and the PNA, government and NGO employees used their salaries to enjoy the new discos and restaurants that were built with returnee investment money. This extravagance has bred resentment among non-returnee Palestinians, many of whom have seen their standard of living decline. Returnees have been accused of using legal loopholes that they helped create in the economic accords in order to profit personally from Palestinian “autonomy.” While not all returnees are corrupt and amoral, such perceived differences between locals and returnees help fuel political opposition to the PNA. Without investments that emphasize longer term economic growth the initial benefits brought by returnees may dissipate, while the increased economic disparities between the haves and have-nots may further inflame political tensions.
 International Bank for Reconstruction and Development, Developing The Occupied Territories: An Investment in Peace, Vol. 2, The Economy (Washington, DC: The World Bank, September 1993), p. 10.
 United Nations Special Coordinator in the Occupied Territories, UNSCO Report on Economic and Social Conditions in the West Bank and Gaza (Jerusalem: UNSCO, Spring 1998), http://www.arts.mcgill.ca/mepp/unsco/unfront.html.
 These calculations are by the authors using the Territories Labor Force Survey data collected by the Israeli Central Bureau of Statistics.
 Radwan Shaban, “Living Standards in the West Bank and Gaza Strip,” working paper, MAS Study Paper 14-0017 (Ramallah: Economic Monitoring Unit of the Palestine Economic Policy Research Institute, August 1997) reports per capita GDP of $883 and $1551 in 1995 for Gaza and the West Bank, a decline of 8.4 and 19.7 percent respectively during this period, http://www.palecon.org/masdir/publications/livingstandards.html
 For an economic critique of the Oslo accords, see Jennifer Olmsted, “Thwarting Palestinian Development,” Middle East Report 201 (October-December 1996), pp. 11-13.
 Michele Chabin, “An Uneasy Homecoming,” Jerusalem Post, July 21, 1998, states that official estimates of legal returnees range from 40,000 to 50,000, with unofficially repatriated returnees estimated at no more than 50,000. Abbas Shiblak of the Palestinian Diaspora and Refugee Centre (Shaml) reports an estimate of 60,000 in the preface to Reintegration of the Palestinian Returnees, Monograph 6 (Bethlehem: Shaml Publication, 1997). In the same publication, a discussion paper by Jill Tansley titled “Adaptation in the West Bank and Gaza Strip” cites a figure of 52,000 as of 1997. For Tansley and Shiblak see http://www.shaml.org/publications/mono6.htm.
 The use of the term “returnee” is somewhat problematic, since some of these Palestinians never did live in Palestine, having been born in the diaspora. Still, the terms “returnee” and “local” will be used to identify those who have recently “returned” based on the Oslo accords from those who have been residents in the West Bank and Gaza Strip for a longer period of time.
 “Adaptation in the West Bank and Gaza Strip,” op. cit.
 UNSCO Report on Economic and Social Conditions in the West Bank and Gaza, op cit.
 Ibid. These estimates do not include the underemployed, i.e., people who work less hours than they would like.
 Toronto Star, April 27, 1999.