From Economic Integration to Near Elimination: The Economic Consequences of Isolation

This paper captures the labor market consequences of Gaza Blockade (2007–), a politically motivated and unanticipated event that provides rare opportunity for natural experiment. I am aided by fact West Bank is comparison group examining Blockade. Using difference-in-difference framework, find that, relative to domestic workers in Bank, those experienced an additional 11% point increase unemployment rate 13–20% reduction real wages. The long-term effect (3 years later), on wages was at least 1.5 times larger. Rising wage inequality another consequence Blockade, which manifested itself upsurge industry differentials lesser extent, skill premium. also discusses impact crisis sectoral composition Gazan economy, particularly as result severe contraction non-service industries private sector. While constitutes extreme case massive economic shock radical departure from close integration earlier decades, results this study can nevertheless serve shed light how other open economies are likely respond increasingly common imposition restrictions trade factor mobility such sanctions, visa restrictions, wars. effects barriers dire absence reforms designed mitigate their adverse effects.KEYWORDS: Middle East; conflict; development; labour; wages;