as building a road, or towards the development of industries that can naturally overcome distance, such as the information and communication technology (ICT) sector? The ICT sector is a promise for a “productivity miracle” (Bloom et al. (2012)). Focusing on goods sold virtually like software development, application development, and website design, the ICT sector is able to absorb the supply of a high skilled labor force in the area while being less susceptible to mobility restrictions. In addition, ICT has an important role in accounting for aggregate productivity (Draca et al. (2006)). However, as much as we think of ICT as being able to overcome physical barriers, the sector is still deeply affected by them. ICT heavily relies on other industries for its inputs, and an important part of the sector is non-tradable, linked to face-to-face interaction with clients, suppliers, and among employees.<sup>1</sup> The West Bank, a territory interspersed with checkpoints and other mobility restrictions, is an almost ideal place to address these questions. Since 2000, mobility restrictions resulted in a dramatic increase in travel times and transportation costs (figure 1). In the meantime, the Palestinian ICT sector has witnessed a significant expansion, partially driven by the outpouring of foreign investment and foreign aid. Palestinian programmers are employed either directly or via outsourcing by Israeli companies. The largest, Mellanox, employs 125 – Palestinians in the West Bank and 25 in Gaza. Other Israel-based ICT firms Cisco, Microsoft, Intel, Sun-Disk - employ Palestinian workers, attracted by the large pool of cheap, high-skilled labor.<sup>2</sup> The Palestinian ICT sector has focused on the production of intangible products that require high human capital and low physical capital. This is the case, for instance, of Yamsafer, an online booking website and one of the most successful ICT startups in the West Bank. Established in 2011 thanks to venture capital money, it successfully raised $3.5 million in its second investment round in June 2015. Donors have often seen the Palestinian ICT as the golden goose, the solution to (physical) barriers and obstacles Palestinians face, and the hope to bring the economy into the new century.<sup>3</sup> In 2012, the New York Times wrote “Compared with other industries that the anemic West Bank economy might look to develop, the information and communications technology sector has an advantage: it is much less affected by impediments to movement, like the barriers, checkpoints and permit requirements that Israel imposes on the territory in the name of security.”<sup>4</sup> As recently as June 15, 2020, the World Bank made the same bet, promising to invest $15 million in the Palestinian sector,<sup>5</sup> arguing that “the outlook for the Palestinian IT sector is promising if the right actions are taken.”<sup>6</sup> We investigate how and to what extent the Palestinian ICT sector can overcome the barriers to the movement of people and goods, and how this has affected the industrial

> 1In addition, innovation and technology are important determinants themselves of spatial agglomeration (Davis and Dingel (2019)).

> 2Senor and Singer (2011) describes the role of startups and technological innovation in Israel.

> 3See The Portland Trust (2013) for an analysis of the IT sector.

> 4New York Times, July 29, 2012. West Banks’s Emerging Silicon Valley Evades Issues of Borders.

> 5World Bank, Press Release, June 15, 2020

> 6World Bank senior private sector specialist Iulia Cojocaru, according to The Jerusalem post, June 15, 2020.

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