The Effect of the Arab Boycott on Israel: The Automobile Market
23 Pages Posted: 17 Jan 1997
Date Written: January 1996
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 $1940 in 1995. This benefit can be interpreted as a peace dividend. Since approximately 113,000 new automobiles were sold in 1995, the welfare gain to consumers was more than $219 million that year.
JEL Classification: F14
Suggested Citation: Suggested Citation