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Israel’s open-secret trade

Review of World Economics volume 153, pages 233–248 (2017)Cite this article

Abstract

This paper uncovers and quantifies Israel’s exports to countries that ban trade with Israel. Israel exported a total of $6.4 billion worth of merchandise to boycott countries between 1962 and 2012, and most of this trade is illicit, i.e. not recorded by the importers. We find that electronic exports to Malaysia account for the lion’s share of this trade but it also includes a wide array of products from footwear to fruit and vegetables. Our estimates suggest Israel’s exports to these countries would be 10 times larger without the boycott. On top of providing further evidence on the unintended consequences of unilateral trade bans, this paper provides a case study on the role of politics in international trade.

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Fig. 1
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Fig. 4

Source UN Comtrade

Fig. 5

Source TiVA. The horizontal line gives the average Israeli share of indirectly-imported value-added across countries. The country codes give the importing country

Fig. 6

Source UN Comtrade and World Development Indicators. Current USD. Log scales

Fig. 7

Notes

  1. The Arab League Boycott can be traced back to the Intercommunal conflict in Mandatory Palestine when Arab leaders sought to ban products of Jewish industry in Palestine to deter Jewish immigration to the region. The first formal declaration of boycott was issued in 1945. It stated that “Products of Palestinian Jews are to be considered undesirable in Arab countries. They should be prohibited and refused as long as their production in Palestine might lead to the realization of Zionist political aim” (Losman 1972).

  2. In 1973 during the Yom Kippur War Cuba was the first Latin American country to cut ties with Israel. Venezuela and Bolivia cut ties in 2009 after an Israeli ground invasion of the Gaza Strip, while Nicaragua cut ties in 2010 after the Mavi Marmara flotilla raid. According to Senkman (2014), the cutting of ties is more of “an integral part of international struggle to develop political, social and economic alternatives that enhance justice, equality and sovereignty of the peoples” than a political strategy against imperialism and of non-alignment with American foreign policy.

  3. The countries that boycotted Israel during our period of study (1962–2012) are (periods of non-boycott are in parenthesis): Afghanistan, Algeria, Bahrain (1996–2000), Bangladesh, Bhutan, Bolivia (until 2010), Brunei, Chad (until 1973), Comoros, Cuba (until 1973), Djibouti, Guinea (until 1969), Indonesia, Iran (until 1979), Iraq, North Korea, Kuwait, Lebanon, Libya, Malaysia, Mali (until 1973), Mauritania (2000–2009), Morocco (1993–2000), Nicaragua (until 1982, 1992–2010), Niger (until 1973, 1996–2002), Oman (1996–2000), Pakistan, Qatar (1996–2009), Saudi Arabia, Somalia, Sudan, Syria, Tunisia (1996–2000), United Arab Emirates, Venezuela (until 2009), and Yemen.

  4. Israel prohibits trade with only three enemy countries, Iran, Lebanon and Syria as per the Trading with the Enemy Ordinance of 1939.

  5. Calls for a stronger enforcement of the boycott in 2001 led to the first meeting the Central Boycott Office in Damascus since April 1993 (USTR 2003).

  6. We also looked for traces of fake certificates of origin, from Cyprus, Lebanon or Turkey in industry level data but found no such evidence. This type of practice may be hard to detect as often the volume of imports from such third countries drowns Israel export reports. For example Oman’s imports from Lebanon are worth 100 times more than Israel’s export to Oman, or Saudi Arabia imports from Turkey are 2000 times larger than Israel’s exports to Saudi Arabia.

  7. Head and Mayer (2014) suggest that the destination-GDP elasticity of exports is 0.84 on average. However, trade costs such as long distances, different languages and trade barriers can affect the correlation between exports and destinations’ GDPs.

  8. Note that our predicted flows incorporate only partial equilibrium effects.

  9. We chose not to use the usual trade gap variable, i.e. the log difference between exports and imports as imports are zero in most cases and therefore the variation in the trade gap would come only from changes in reported Israeli exports.

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Author information

Authors and Affiliations

  1. Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS, Marseille, France

    Lorenzo Rotunno

  2. King’s College London, London, UK

    Pierre-Louis Vézina

Authors
  1. Lorenzo Rotunno
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  2. Pierre-Louis Vézina
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Corresponding author

Correspondence to Pierre-Louis Vézina.

Additional information

We are grateful to two anonymous referees and participants at the 2015 Workshop on Informal Trade and the Art of Smuggling at Birmingham Business School for many constructive comments.

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Rotunno, L., Vézina, PL. Israel’s open-secret trade. Rev World Econ 153, 233–248 (2017). https://doi.org/10.1007/s10290-017-0275-3

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  • DOI: https://doi.org/10.1007/s10290-017-0275-3

Keywords

  • Trade policy
  • Israel
  • Illegal trade

JEL Classification

  • F13
  • O17