Abstract. International aid to Palestinians is one of the highest in the world, meanwhile, the need for such aid is increasing during time. Under the strict occupation policies, either political, economic or military, the majority of international aid is absorbed by the Israeli economy, which leave the Palestinian economy completely dependent. Four simultaneous equations were estimated using the Three Stage Least Squares to detect the impact of ODA on growth, domestic savings, imports and imports from Israel. Available time series data for Palestine from 2000 to 2019 were estimated. We estimate the international aid propensity to imports and to imports from Israel, besides the impact on growth and domestic savings. We found that ODA associates negatively on growth, crowds out domestic savings and increase imports from Israel more than other imports. ODA marginal propensity to import from Israel is twice and half the marginal propensity to total imports, which that indicates the influence of economic accords and occupation procedures. In addition, Israel absorbs directly one-fourth of each dollar donated to Palestinian economy, and higher absorption is potential in the long run. Correlation has been measured between ODA and Palestinian trade deficit with Israel, and we found that more than 87% of aid ends up in the Israeli economy. A series of recommendations were provided including ending of the unilateral trade union imposed by Israel.

Keywords: ODA, economic growth, domestic savings, propensity to imports, simultaneous equations, Palestinian economy.