# The Effect of the Arab Boycott on Israel: The Automobile Market

## Author Info

• Chaim Fershtman

(Tel Aviv)

• Neil Gandal

(Tel Aviv)

Registered author(s):

## Abstract

Recent progress towards a comprehensive peace in the Middle East has led to a relaxation of the enforcement of the Arab economic boycott of Israel. This in turn has led to the entry of all the major Japanese and Korean automobile manufacturers into the Israeli market. In this paper, we examine the effect of the Arab economic boycott on this market. Using recent advances in estimating discrete-choice models of product differentiation, we estimate that had the boycott continued, the welfare loss per purchaser would have been approximately \$790 in 1994. This benefit can be interpreted as a {\em peace dividend}. Since approximately 113,000 new automobiles were sold in 1994, the welfare gain to consumers was more than \$89 million that year.

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## Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 9511001.

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 Length: Date of creation: 27 Nov 1995 Date of revision: Handle: RePEc:wpa:wuwpit:9511001 Note: Latex file; two charts not included. For Hard Copy, send E-mail to Ms. Stella Padeh at foerder@econ.tau.ac.il Contact details of provider: Web page: http://econwpa.repec.org

## References

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1. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
2. Andrew Caplin & Barry Nalebuff, 1990. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Cowles Foundation Discussion Papers 937, Cowles Foundation for Research in Economics, Yale University.
3. Simon P. Anderston & Andre de Palma, 1991. "Multiproduct Firms: A Nested Logit Approach," Discussion Papers 973, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
4. Shane Greenstein, 1994. "From Superminis to Supercomputers: Estimating Surplus in the Computing Market," NBER Working Papers 4899, National Bureau of Economic Research, Inc.
5. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-79, April.
6. Gary Clyde Hufbauer & Jeffrey J. Schott & Kimberly Ann Elliott, 1990. "Economic Sanctions Reconsidered: 2nd Edition," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 82.
7. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
8. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
9. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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