Exports, Employment and Conflict: Evidence From the Second Intifada

Do export shocks affect conflict? The evidence on this question has so far focused mainly on commodity price shocks. This paper uses data from the entire export basket to examine whether shocks to Palestinian exports in the second half of the 1990s affected the intensity of the subsequent Palestinian uprising (‘Second Intifada’). The analysis uses sector-specific changes in Chinese and global exports to instrument Palestinian exports to minimize potential endogeneity bias of export changes with respect to conflict. The findings suggest that an increase of USD 10 million in Palestinian exports of a sector employing 10% of the locality’s private employment reduces the number of Palestinians killed by Israel in that locality by 13.9 percent. The paper provides evidence that these results are consistent with the opportunity cost mechanism of conflict participation.