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

  • Assaf Zimring

    ()

    (University of Michigan)

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    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.

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    File URL: http://www-siepr.stanford.edu/repec/sip/12-024.pdf
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    Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 12-024.

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    Date of creation: Jan 2013
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    Handle: RePEc:sip:dpaper:12-024
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    1. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    2. repec:cup:cbooks:9780521296762 is not listed on IDEAS
    3. Douglas A. Irwin, 2005. "The Welfare Cost of Autarky: Evidence from the Jeffersonian Trade Embargo, 1807-09," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 631-645, 09.
    4. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
    5. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
    6. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    7. Ralph Ossa, 2012. "Why Trade Matters After All," NBER Working Papers 18113, National Bureau of Economic Research, Inc.
    8. Daniel M. Bernhofen & John C. Brown, 2005. "An Empirical Assessment of the Comparative Advantage Gains from Trade: Evidence from Japan," American Economic Review, American Economic Association, vol. 95(1), pages 208-225, March.
    9. James Feyrer, 2009. "Distance, Trade, and Income - The 1967 to 1975 Closing of the Suez Canal as a Natural Experiment," NBER Working Papers 15557, National Bureau of Economic Research, Inc.
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