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Gains from Trade: Lessons from the Gaza Blockade 2007-2010

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  • Assaf Zimring

    (University of Michigan)

Abstract

This paper uses detailed household expenditure and firm production data to study the welfare consequences of the blockade imposed on the Gaza Strip between 2007 and 2010. Using the West Bank as a counterfactual, I find that being removed from world markets reduced welfare by 17%-28% on average. Moreover, households with larger pre-blockade expenditure levels experienced disproportionally larger welfare losses. These effects are substantially larger than the predictions of standard trade models. I show that this large decline in welfare may be due to a combination of resource reallocation and reduced productivity. Using firm level data I find that the blockade triggered reallocation of workers across firms and sectors, especially from manufacturing to services, and from industries that use imported inputs intensively, or export. In addition, labor productivity fell sharply by 23%. This decline was however significantly higher in manufacturing (39%) than in services (5%). These findings suggest that access to world markets did not only determine the location of the Gaza economy on a given Production Possibility Frontier, but also determined the shape of this PPF.

Suggested Citation

  • Assaf Zimring, 2013. "Gains from Trade: Lessons from the Gaza Blockade 2007-2010," Discussion Papers 12-024, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:12-024
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    References listed on IDEAS

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    Cited by:

    1. Francesco Amodio & Michele Di Maio, "undated". "Making Do with What You Have: Conflict, Firm Performance and Input Misallocation in Palestine," Development Working Papers 379, Centro Studi Luca d'Agliano, University of Milano.

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