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Economy of Israel
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The economy of Israel is a diversified mixed economy with substantial state ownership and a rapidly developing high-tech sector. Poor in natural resources, Israel depends on imports of petroleum, coal, food, uncut diamonds, other production inputs, and military equipment. In May 2007, Israel was invited to join the OECD.
The country's GDP (Purchasing power parity) in 2006 reached $195 billion according to the International Monetary Fund or $179 billion according to the World Bank (see List of countries by GDP (PPP)).
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Encyclopedia
The economy of Israel is a diversified mixed economy with substantial state ownership and a rapidly developing high-tech sector. Poor in natural resources, Israel depends on imports of petroleum, coal, food, uncut diamonds, other production inputs, and military equipment. In May 2007, Israel was invited to join the OECD.
The country's GDP (Purchasing power parity) in 2006 reached $195 billion according to the International Monetary Fund or $179 billion according to the World Bank (see List of countries by GDP (PPP)). GDP per capita has been $31,767 according to the International Monetary Fund in 2007 or $26,200 in 2006 according to the CIA World Factbook. $31,767 is on par with most Western European countries like France or Italy, while $26,200 is lower than most Western European countries, except Portugal but higher than all Eastern European countries and close to the average for the European Union (see List of countries by GDP (PPP) per capita). The economy grew by 8% in the last quarter of 2006, faster than any of its Western counterparts.
The major industrial sectors include metal products, electronic and biomedical equipment, processed foods, chemicals, and transport equipment. Israel possesses a substantial service sector and the Israel diamond industry is one of the world's centers for diamond cutting and polishing. It is also a world leader in software development and is a major tourist destination. In 1998, Tel Aviv was named by Newsweek as one of the ten most technologically influential cities in the world. American billionaires and business tycoons including Bill Gates, Warren Buffett, and Donald Trump have each praised Israel’s economic environment, and the country was the destination for Berkshire Hathaway's first investment outside of the USA when it purchased ISCAR Metalworking, and the first R&D Centers outside the USA for companies including Intel and Microsoft. The country has now become known as Silicon Wadi.
Israel has signed free trade agreements with the European Union, the United States, the European Free Trade Association, Turkey, Mexico, Canada, Jordan, Egypt, and on 18 December 2007, became the first non-Latin American country to sign a free trade agreement with the Mercosur trade bloc.
Macro-economic trend
This is a chart of trend of gross domestic product of Israel at market prices by the International Monetary Fund and EconStats with figures in millions of Israeli Shekels.
| Year | Gross Domestic Product |
|---|
| 1985 | 28,437 | | 1990 | 106,475 | | 1995 | 269,718 | | 2000 | 470,732 | | 2005 | 553,970 | | 2007 | |
Average wages in 2007 hover around $109-133 per day.
Israel's strong commitment to economic development and its talented work force led to economic growth rates during the nation's first two decades that frequently exceeded 10% annually. The years after the 1973 Yom Kippur War were a lost decade economically, as growth stalled, inflation soared and government expenditures rose significantly. Also worthy of mention is the 1983 Bank stock crisis. By 1984, the economic situation became almost catastrophic with inflation reaching an annual rate close to 450% and projected to reach over 1000% by the end of the following year. However, the successful economic stabilization plan implemented in 1985 and the subsequent introduction of market-oriented structural reforms reinvigorated the economy and paved the way for its rapid growth in the 1990s and became a model for other countries facing similar economic crises.
Two developments have helped to transform Israel's economy since the beginning of the 1990s. The first is waves of Jewish immigration, predominantly from the countries of the former USSR, that has brought over one million of new citizens to Israel. These new immigrants, many of them highly educated, now constitute some 16% of Israel's 6.5 million population. The second development benefiting the Israeli economy is the peace process begun at the Madrid conference of October 1991, which led to the signing of accords led to a peace treaty between Israel and Jordan (1994). The Oslo Accords between Israel and the Arabs led to the Second Intifada, which caused Israel to lose billions of dollars in economic terms. Experts say that even had the peace process not failed the Arab economies had little to offer Israel in terms of trade except for oil. In spite of Israel's difficult security situation it managed to open up new markets to Israeli exporters farther afield, such as in the rapidly growing countries of East Asia. In the past few years there has been an unprecedented inflow of foreign investment in Israel, as companies that formerly shunned the Israeli market now see its potential contribution to their global strategies. In 2006, foreign investment in Israel totaled $13 billion, according to the Manufacturers Association of Israel. Thus, in Israeli terms, prosperity increases, regardless of whether there is a de-facto peace or not. The Financial Times recently said that 'bombs drop, yet Israel's economy grows', as a demarker to this fact.
Israeli companies, particularly in the high-tech area, have recently enjoyed considerable success raising money on Wall Street and other world financial markets; Israel now ranks second among foreign countries in the number of its companies listed on U.S. stock exchanges.
External trade
For 2006, Israeli exports grew by 11% to just over $29 billion; the hi-tech sector accounted for $14 billion, a 20% increase from the previous year.
The United States is Israel's largest trading partner; two-way trade totalled some $12.6 billion in 1997. The principal U.S. exports to Israel include computers, integrated circuits, aircraft parts and other defense equipment, wheat, and automobiles. Israel's chief exports to the U.S. include cut diamonds, jewelry, integrated circuits, printing machinery, and telecommunications equipment. The two countries signed a free trade agreement (FTA) in 1985 that progressively eliminated tariffs on most goods traded between the two countries over the following ten years. An agricultural trade accord was signed in November 1996, which addressed the remaining goods not covered in the FTA. Some non-tariff barriers and tariffs on goods remain, however. Israel also has trade and cooperation agreements in place with the European Union and Canada, and is seeking to conclude such agreements with a number of other countries, including Turkey, Jordan and several countries in Eastern Europe.
Until the last decade, Israel's trade with the Arab world was minimal due to the Arab League boycott. Beginning in 1945, Arab nations not only refused to have direct trade with Israel (the primary boycott), but they also refused to do business with any corporation that operated in Israel, or any corporation that did business with a corporation that did business with Israel (the secondary and tertiary boycotts).
2.8% of the country's GDP is derived from Agricultural activity. While Israel imports substantial quantities of grain, it is largely self-sufficient in other agricultural products and food stuffs, because food must be regulated Kashrut for sale in the Israeli retail market, and hence imports almost no food products from other countries. For centuries, farmers in Israel have grown varieties of citrus fruits such as grapefruit, oranges and lemons. Citrus fruits are still Israel's major agricultural export (see Jaffa orange) In addition, Israel is one of the world's leading greenhouse food exporting countries, it produces chemically altered tomatoes for example.
Israel currently relies on imports for meeting most of its energy needs, spending an amount equivalent to over 5% of its GDP per year on imports of energy products. The transportation sector relies mainly on gasoline and diesel fuel while the majority of electricity production is generated using imported coal. The country possesses negligible reserves of crude oil but does have some substantial domestic natural gas resources. A 32 billion cubic meters (BCM) natural gas field is located offshore Ashkelon, however, as of 2009 it is approximately two-thirds exhausted. In early 2009, a significant gas find estimated at 142 BCM was located in deep water approximately 90km west of Haifa. In the years 2009-2030, the Israeli market is expected to consume around 235 BCM of natural gas and thus proven domestic supplies can only account for approximately two-thirds of this amount. The rest is expected to be purchased by pipeline from nearby Egypt and in the form of LNG from other countries. Nevertheless, the large gas find near Haifa has raised the prospect of finding additional domestic resources of natural gas along the Eastern Mediterranean shore, prompting more exploratory drilling off Israel's coastline.
Israel is one of the world's major exporters of military equipment, accounting for 10% of the world total in 2007.
Income
Comparing incomes of a median household in Israel vs. other countries.
| Annual data 2006 | Historical averages (%) 2002-06 |
|---|
| Population (m) - 7.1 | Population growth - 1.8 | | GDP per head (US$; purchasing power parity) - 27,588 | Real GDP growth - 3.1 | | Percent of unemployed persons (January 2007) - 7.6 | Inflation - 1.9 | | Exchange rate (av) NIS:US$ - 4.2 | Current-account balance (% of GDP) - 1.6 |
According to the data published by the Israeli central bank, 60% of the poor households in Israel are of the Haredi Jews and the Israeli Arabs in which there is a high birth rate and a low participation rate in the labor force.
See also
Bibliography
- Ben-Porath, Yoram ed. The Israeli Economy: Maturing through Crises. Cambridge, Massachusetts: Harvard University Press, 1986.
- Chill, Dan. The Arab Boycott of Israel: Economic Aggression and World Reaction. New York: Praeger Publishers, 1976.
- Kanovsky, Eliyahu. The Economy of the Israeli Kibbutz. Cambridge, Massachusetts: Harvard University Press, 1966.
- Klein, Michael. A Gemara of the Israel Economy. Cambridge, Massachusetts: National Bureau of Economic Research, 2005.
- Michaely, Michael. Foreign Trade Regimes and Economic Development: Israel. New York: National Bureau of Economic Research, 1975.
- Seliktar, Ofira. “The Changing Political Economy of Israel: From Agricultural Pioneers to the “Silicon Valley” of the Middle East.” In Israel’s First Fifty Years edited by Robert Freedman 197-218. Gainesville, Florida: University of Florida Press, 2000.
- Rubner, Alex. The Economy of Israel: A Critical Account of the First Ten Years. New York: Frederick A. Praeger Publishers, 1960.
- Sara and Meir Aharoni (2005). Industry & Economy in Israel.
External links
Updates
Articles and Documents
- [https://www.cia.gov/library/publications/the-world-factbook/geos/is.html#Econ CIA World Factbook - Israel]
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- Tobias Buck, Financial Times
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