Gaza blockade consequences: 17-28 percent welfare reduction on average.

The Economic Consequences of the Gaza Blockade

A blog about business and economics.
Nov. 26 2012 8:26 AM

The Economic Consequences of the Gaza Blockade

Via Tyler Cowen, Assaf Zimring of Stanford has done his job-market paper on the contrasting economic fates of blockaded Gaza and the nonblockaded West Bank to estimate the tangible benefits of access to global markets. It turns out that living under blockade is really awful:

This paper uses detailed household expenditure and firm production data to study the welfare consequences of the blockade 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 discrepancy is 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 and into services, and from industries that use imported inputs intensively, or export. In addition, labor productivity fell sharply by 24%-29%. This decline was however significantly higher in manufacturing (45%) than in services (5%).

These empirical findings support, I think, the old-timey view of a blockage as an act of war. Beyond that it's a reminder that for the vast majority of the global poor lucky enough not to be living under a unilaterally imposed blockade, one of the most helpful things that can be done is to enhance their access to global markets.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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