The Economic Dividends of Peace: Evidence from Arab-Israeli Normalization

Abstract

This paper provides the first causal evidence on the long-run economic dividends of Arab-Israeli peace treaties. Using synthetic control and difference-in-differences estimators, we analyze 1978 Camp David Accords and 1994 peace treaty between Jordan and Israel. Both cases reveal large and lasting gains. By 2011, real GDP of Egypt exceeded its synthetic counterfactual by 64 percent, and per capita income by 82 percent. Jordanian trajectory shows similarly permanent improvements, with real GDP higher by 75 percent and per capita income by more than 20 percent. The mechanisms differ: in Egypt, gains stem from a sharp fiscal reallocation together with higher foreign direct investment and improved institutional credibility, while Jordan benefited primarily through enhanced trade and financial inflows. Robustness and placebo tests confirm the uniqueness of these effects. The results demonstrate that peace agreements yield large, durable, and heterogeneous growth dividends.