This paper uses detailed household expenditure and firm production data to study the welfare consequences of the blockade imposed on the Gaza Strip between mid-2007 and mid-2010. Using the West Bank as a counterfactual economy, we find that welfare declined by 14%–27%. Moreover, households with larger pre-blockade expenditure levels experienced larger welfare losses. We show that this large decline in welfare may be due to a combination of resource reallocation and reduced productivity. Workers were reallocated from manufacturing to services, and from industries that use imported inputs intensively, or export. In addition, labor productivity fell by 20% on average.
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