Yeah, being occupied is a problem for any economy, because an economy relies on functioning infrastructure and trade. Things like blockades and obstructed roads will diminish commerce. On that point, there is no real dispute. The problem remains, however, of why the Palestinians are doing the same to slightly better than the rest of the Arab world. Why, indeed, were they doing substantially better than the rest of the Arab world under Israeli occupation up until around 2000? And why then did they then decline to living standards roughly equivalent to the rest of the Arab world?
First off, one can only conclude that Israeli occupation has been rather a mixed bag for them economically. For the first 30 odd years, the benefits of it seemed to outweigh the detriments. Where do you think the now partially obstructed infrastructure came from? Hint: much of it didn't exist before Israeli occupation.
Over the past 12 years OTOH, the detriments and benefits seem to roughly cancel each other out. And I think we know why that is, and what is different about Israeli policy since 2000 and why. In any event, the controversy over Israeli hardline policies aside, this is about the accuracy of Romney's remarks, so the real question is, is there any basis to assume that the pals will do any better economically if Israel packed up and left tomorrow? If so, why? What precedent is there for such an assumption?