Economy of Israel

Economy of Israel

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{{Use dmy dates|date=September 2011}} [[File:Isr world GNI percapita.PNG|thumb|right|283px|[[List of countries by GNI (nominal, Atlas method) per capita|GNI per capita]]:
{{legend|#008000|Israel (25,740$)}} {{legend|#0000FF|Higer GNI per capita compared to Israel}} {{legend|#FF8040|Lower GNI per capita compared to Israel}}]] The economy of Israel is a technologically advanced [[market economy]], including a rapidly-developing [[Silicon Wadi|high-tech]] and [[service sector|service sectors]]. As of 2010, Israel has the 24th largest economy in the world, and ranks [[List of countries by Human Development Index|15th among 169]] world nations on the UN's [[Human Development Index]], which places it in the category of "Very Highly Developed". The major [[industrial sector|industrial sectors]] include metal products, electronic and biomedical equipment, processed foods, chemicals, and transport equipment. [[Israel diamond industry]] is one of the world's centers for [[diamond cutting]] and polishing. Relatively poor in natural resources, Israel depends on imports of petroleum, coal, food, uncut diamonds and production inputs, though the country's nearly total reliance on energy imports may change with recent discoveries of large [[natural gas]] reserves off its coast. Israel is a world leader in [[software]], [[Communications in Israel|telecommunication]] and [[semiconductors]] development. The high concentration of high-tech industries in Israel, which are backed by a strong [[Venture capital in Israel|venture capital industry]], gave it the nickname "[[Silicon Wadi]]", which is considered second in importance only to its [[Silicon Valley|Californian counterpart]]. The country was the destination for [[Berkshire Hathaway]]'s first investment outside the US when it purchased [[ISCAR Metalworking]], and the first research and development centers outside the USA for companies including [[Intel]] and [[Microsoft]]. Israel is also a major [[Tourism in Israel|tourist destination]], with 3.45 million foreign tourists visiting in 2010. In September 2010, Israel was invited to join the [[OECD]]. Israel has also signed [[free trade agreement]]s 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.


The first survey of the [[Dead Sea]] in 1911, by the Russian Jewish engineer [[Moshe Novomeysky]], led to the establishment of Palestine Potash Ltd. in 1930, later renamed the [[Dead Sea Works]]. In 1923, [[Pinhas Rutenberg]] was granted an exclusive concession for the production and distribution of electric power. He founded the Palestine Electric Company, later the [[Israel Electric Corporation]]. In 1937, there were 86 spinning and weaving factories in Palestine, employing a workforce of 1,500. Capital and technical expertise were supplied by Jewish professionals from Europe. The Ata textile plant in [[Kiryat Ata]], which went on to become an icon of the Israeli textile industry, was established in 1934. The industry underwent rapid development during World War II, when supplies from Europe were cut off while local manufacturers were commissioned for army needs. By 1943, the number of factories had grown to 250, with a workforce of 5,630, and output increased tenfold.

After the establishment of the state

After statehood, priority was given to establishing industries in areas slated for development, among them [[Lachish]], [[Ashkelon]], the [[Negev]] and [[Galilee]]. The expansion of Israel's textile industry was a consequence of the development of cotton growing as a profitable agricultural branch. By the late 1960s, textiles were one of the largest industrial branches in Israel, second only to the foodstuff industry. Textiles constituted about 12% of industrial exports, becoming the second-largest export branch after [[diamond cutting|polished]] diamonds. In the 1990s, cheap East Asian labor decreased the profitability of the sector. Much of the work was subcontracted to 400 Israeli Arab sewing shops. As these closed down, Israeli firms, among them Delta, Polgat, Argeman and Kitan, began doing their sewing work in Jordan and Egypt, usually under the [[Qualifying Industrial Zone|QIZ]] arrangement. In the early 2000s, Israeli companies had 30 plants in Jordan. Israeli exports reached $370 million a year, supplying such retailers and designers as [[Marks & Spencer]], [[Gap (clothing retailer)|The Gap]], [[Victoria's Secret]], [[Wal-Mart]], [[Sears]], [[Ralph Lauren]], [[Calvin Klein]], and [[Donna Karan]]. [[File:PikiWiki Israel 3584 Gan-Shmuel sb12- 7.jpg|thumb|left|The [[Kibbutz]]im, collective communities in Israel traditionally based on agriculture, played an important role in Israel's economy until the late 70s.|alt=Men loading hay bales onto truck at a Kibbutz.]] In its first two decades of existence, Israel's strong commitment to development led to economic growth rates that 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 (Israel 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 (Israel 1985)|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 [[Aliyah|Jewish immigration]], predominantly from the countries of the former [[Soviet Union|USSR]], that has brought [[Israel#Demographics|over one million new citizens to Israel]]. These new immigrants, many of them highly educated, now constitute some 16% of Israel's 7.5 million population. The second development benefiting the Israeli economy is the [[Peace process in the Israeli-Palestinian conflict|peace process]] begun at the [[Madrid Conference of 1991|Madrid conference]] of October 1991, which led to the signing of accords and later to a peace treaty between Israel and [[Jordan]] (1994). Despite the [[Second Intifada]], which cost Israel billions of dollars in economic terms, Israel 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 direct investment|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]]. The [[Financial Times]] said that 'bombs drop, yet Israel's economy grows'. Moreover, while Israel's total gross external debt is US$84 billion, or approximately 44% of GDP, since 2001 it has become a net lender nation in terms of net external debt (the total value of assets vs. liabilities in debt instruments owed abroad), which as of June 2009 stood at a significant surplus of US$54 billion. The country also maintains a [[current account]] surplus in an amount equivalent to about 3% of its gross domestic product in 2010. The Israeli economy withstood the [[late-2000s recession]], registering positive GDP growth in 2009 and ending the decade with an unemployment rate lower than that of many western countries. [[File:Stanley Fischer.jpg|right|thumb|upright=0.70|[[Stanley Fischer]], current Governor of the [[Bank of Israel]]|alt=Photo of Stanley Fischer, Governor of Bank of Israel.]] There are several reasons behind this economic resilience, for example, the fact, as stated above, that the country is a net lender rather than a borrower nation and the government and the Bank of Israel's generally conservative macro-economic policies. Two policies in particular can be cited, one is the refusal of the government to succumb to pressure by the banks to appropriate large sums of public money to aid them early in the crisis, thus limiting their risky behavior. The second is the implementation of the recommendations of the Bach'ar commission in the early to mid-2000s which recommended decoupling the banks' depository and investment banking activities, contrary to the then-opposite trend, particularly in the United States, of easing such restrictions which had the effect of encouraging more risk-taking in the financial systems of those countries.

OECD membership

In May 2007, Israel was invited to open accession discussions with the [[OECD]]. In May 2010, the OECD voted unanimously to invite Israel to join, despite Palestinian objections. It became a full member on 7 September 2010. The OECD praised Israel's scientific and technological progress and described it as having "produced outstanding outcomes on a world scale."


One of the biggest challenges facing the future of the Israeli economy is the growing number of [[Haredi|Ultra-Orthodox Jews]] who have a low level of official labor force participation amongst men, and this situation could lead to a materially lower [[employment-to-population ratio]] and a higher [[dependency ratio]] in the future. The governor of the [[Bank of Israel]], [[Stanley Fischer]], stated that the growing poverty amongst the Ultra-Orthodox is hurting the Israeli economy. According to the data published by Ian Fursman, 60% of the poor households in Israel are of the [[Haredi Jews]] and the [[Israeli Arabs]]. Both groups together represent 25–28% of the Israeli population.

Economy rankings

As of 2010, Israel has the 24th largest economy in the world, and ranks [[List of countries by Human Development Index|15th among 169]] world nations on the UN's [[Human Development Index]], which places it in the category of "Very Highly Developed". Israel's economy also ranks 17th among the world's most economically developed nations, according to IMD's World Competitiveness Yearbook rankings. The Israeli economy was ranked as the world's most durable economy in the face of crises, and was also ranked first in the rate research and development center investments. The Bank of Israel was ranked first among central banks for its efficient functioning, up from the 8th place in 2009. Israel was ranked first also in its supply of skilled manpower. Israeli companies, particularly in the high-tech area, have enjoyed considerable success raising money on [[Wall Street]] and other world financial markets: as of 2010 Israel ranked second among foreign countries in the number of its companies listed on U.S. stock exchanges. Having moved away from the socialist economic model of the mid-1980s, Israel made dramatic moves toward the free-market paradigm. {{as of|2011}}, Israel's economic freedom score is 68.5, compared to a world average of 59.7, making its economy the 43rd freest in the 2011 [[Index of Economic Freedom]]. Israel's economic competitiveness is helped by strong protection of [[property rights]], relatively low corruption levels, and high openness to global trade and investment. Income and corporate tax rates remain relatively high. {{as of|2009}}, Israel ranks 32nd out of 180 countries in [[Transparency International]]'s [[Corruption Perceptions Index]]. Bribery and other forms of corruption are illegal in Israel, which is a signatory to the [[OECD Bribery Convention]] since 2008.

External trade

[[Image:2006Israeli exports.PNG|right|thumb|upright=1.50|Map of Israeli exports in 2006.|alt=World map of Israeli exports in 2006]] 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 totaled some $24.5 billion in 2010, up from $12.7 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 circuit]]s, printing machinery, and telecommunications equipment. The two countries signed a [[free trade]] agreement (FTA) in 1985 that progressively eliminated [[tariff]]s 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 (secondary boycott), or any corporation that did business with a corporation that did business with Israel (tertiary boycott). Israel is one of the world's major exporters of military equipment, accounting for 10% of the world total in 2007.


[[Image:Lemon Orchard in the Galilee by David Shankbone.jpg|right|thumb|Lemon orchard in the [[Galilee]].|alt=Hillside of lemon orchard in Galilee.]] {{See|Agriculture in Israel}} 2.8% of the country's GDP is derived from [[Agriculture in Israel|agriculture]]. Of a total labor force of 2.7 million, 2.6% are employed in agricultural production while 6.3% in services for agriculture. While Israel imports substantial quantities of grain (approximately 80% of local consumption), it is largely self-sufficient in other agricultural products and food stuffs. 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. In addition, Israel is one of the world's leading greenhouse-food-exporting countries.{{Citation needed|date=May 2011}}

Financial sector

[[File:Azorim Park PT.jpg|right|thumb|Azorim High-Tech park in [[Petah-Tikva]], Israel|alt=Azorim High-Tech park in Petah-Tikva, with waterfall fountain near buildings.]] {{See|Banking in Israel|Venture capital in Israel|Tel Aviv Stock Exchange}} [[Venture capital in Israel|Israel's venture-capital]] industry has rapidly developed from the early 1990s, and has about 70 active venture capital funds (VC), of which 14 international VCs have Israeli offices. Israel's thriving venture-capital and [[Business incubator|business-incubator]] industry played an important role in the booming high-tech sector. In 2008, venture capital investment in Israel, rose 19 percent to $1.9 billion. Between 1991 and 2000, Israel's annual venture-capital outlays, nearly all private, rose nearly 60-fold, from $58 million to $3.3 billion; companies launched by Israeli venture funds rose from 100 to 800; and Israel's information-technology revenues rose from $1.6 billion to $12.5 billion. By 1999, Israel ranked second only to the United States in invested private-equity capital as a share of GDP. Israel led the world in the share of its growth attributable to high-tech ventures: 70 percent."

Technology sector

[[File:Weizmann accelerator.jpg|right|thumb|[[Weizmann Institute of Science]], [[Rehovot]]|alt=Orb-tower of Weizmann Institute of Science]] {{See|Science and technology in Israel|Silicon Wadi}} Science and technology in Israel is one of the country's most developed sectors. The percentage of Israelis engaged in scientific and technological inquiry, and the amount spent on research and development (R&D) in relation to gross domestic product (GDP), is amongst the highest in the world. Israel ranks fourth in the world in scientific activity, as measured by the number of scientific publications per million citizens. Israel's percentage of the total number of scientific articles published worldwide is almost 10 times higher than its percentage of the world's population. Israeli scientists have contributed to the advancement of [[Agricultural research in Israel|agriculture]], computer sciences, electronics, [[genetics]], medicine, [[optics]], [[Solar power in Israel|solar energy]] and various fields of engineering. Israel is home to major players in the high-tech industry and has one of the world's most technologically-literate populations. In 1998, [[Tel Aviv]] was named by [[Newsweek]] as one of the ten most technologically-influential cities in the world.


As of 2009, Israel relied on external 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 abundant domestic [[natural gas]] resources which were discovered in large quantities starting in 2009, after many decades of previously unsuccessful [[hydrocarbon exploration|exploration]]. A 33-billion-cubic-metre (BCM), or 1,200-billion-cubic-foot, natural-gas field is located offshore of [[Ashkelon]]; however, as of 2009 it is approximately two-thirds exhausted. In 2009, a significant gas find with [[proven reserves]] of 188 BCM or {{convert|188|e9m3|disp=out}} (259 BCM probable) was located in deep water approximately {{convert|90|km|mi|-1|abbr=on}} west of [[Haifa]], as well as a smaller 15 BCM ({{convert|15|e9m3|disp=out}}) field situated nearer the coastline. Furthermore, results of 3D seismic surveys and test drilling conducted in 2010 confirmed that a 453 BCM ({{convert|453|e9m3|disp=out}}) natural-gas deposit exists in a large underwater geological formation nearby the large gas field already discovered in 2009. (For comparison purposes, the United Kingdom's total proven gas reserves as of 2009 are 343 BCM while Germany's consist of 176 BCM.) In the years 2009–2030, the Israeli market is expected to consume around 250 BCM ({{convert|250|e9m3|disp=out}}) of natural gas and since proven domestic supplies outstrip this demand, it is anticipated that some of the gas will be exported abroad when the fields are commercially developed (which is expected to occur sometime in the mid-2010s decade). For competitive reasons, natural gas is also purchased by [[El Arish-Ashkelon pipeline|pipeline from nearby Egypt]] and in the future potentially in the form of liquefied natural gas from other countries. The large gas discoveries have confirmed that the Levant basin of the Eastern Mediterranean contains significant quantities of natural gas and, potentially, crude oil. Consequently, additional exploration for oil and gas off Israel's coastline is continuing.NEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINE
Field Discovered Production Estimated size
Mari-B 2000 2004 1 trillion cubic feet
[[Tamar gas field|Tamar]] 2008 Not in production 9.1 trillion cubic feet
Dalit 2009 Not in production 700 billion cubic feet
[[Leviathan gas field|Leviathan]] 2010 Not in production 16 trillion cubic feet


As of 2010, the [[Israel Electric Corporation]] (IEC), a state-owned enterprise, produced nearly all of the electricity generated in Israel. The IEC has an aggregate installed generating capacity of 11,690 MW, virtually all of it produced from [[fossil fuel]]s. The company sold 52,037 GWh of electricity in 2010. The IEC is in the midst of adding several thousand megawatts of generating capacity due to increased demand, though a debate is currently raging with respect to how much should be generated from new coal-fired versus gas-fired plants, a determination complicated by the fact that some of the company's capital investment decisions predate the recent discoveries of significant reserves of natural gas offshore. In addition, in order to encourage competition in the electricity market, the government of Israel is currently (mid-2010) considering proposals from four private companies to generate up to 3,640 MW of electricity in 11 new sites, most of which would be gas-fired [[combined cycle]] power stations. [[File:Solar dish at Ben-Gurion National Solar Energy Center in Israel.jpg|right|thumb|The [[Negev Desert]] is home to the Israeli solar research industry, in particular the [[National Solar Energy Center]] and the [[Arava Valley]], which is the sunniest area of Israel.|alt=Large solar dish scaffolding at Ben-Gurion National Solar Energy Center.]]NEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINENEWLINE
Fuel Sources of Total Generated Electricity by the IEC in 2009
Coal [[Fuel oil]] Natural gas [[Diesel fuel|Diesel]]

Solar Energy

{{Main|Solar power in Israel}} Solar power in Israel and the Israeli solar energy industry has a history that dates to the founding of the country. In the 1950s, [[Levi Yissar]] developed a solar water heater to help assuage an energy shortage in the new country. By 1967 around one in twenty households heated their water with the sun and 50,000 solar heaters had been sold. With the [[1973 oil crisis|1970s oil crisis]], [[Harry Zvi Tabor]], the father of Israel's solar industry, developed the prototype solar water heater that is now used in over 90% of Israeli homes. Israeli engineers are on the cutting edge of solar energy technology, and its solar companies work on projects around the world.

Industrial sector

:Further information: [[:Category:Companies of Israel by industry|Companies of Israel by industry]] Israel has a well-developed chemical industry with many of its products aimed at the export market. Most of the chemical plants are located in [[Ramat Hovav]], the [[Haifa Bay]] area and near the [[Dead Sea]]. The [[Dead Sea Works]] in [[Sdom]] is the world's fourth largest producer and supplier of [[potash]] products. The company also produces include [[magnesium chloride]], industrial salts, de-icers, bath salts, table salt, and raw materials for the cosmetic industry. One of the country's largest employers is [[Israel Aerospace Industries]] which produces mainly aviation and defense products. Another large employer is [[Teva Pharmaceutical Industries]], one of the world's largest drug makers.

Diamond industry

{{See|Diamond industry in Israel}} Israel is one of the world's three major centers for polished [[diamonds]], alongside Belgium and India. Israel's net polished diamond exports in the first quarter of 2010 jumped 55 percent from 2009, to $1.45 billion, after a 37 percent drop in all of 2009 to $3.92 billion.


[[Image:Littleuni 13.jpg|right|thumb|[[Ayalon Highway]] near [[Tel Aviv]].|alt=Night view over Ayalon Highway near Tel Aviv.]] {{See|Telecommunications in Israel}}


{{See|Tourism in Israel}} Tourism is one of Israel's major sources of income, with 3.45 million foreign tourists in 2010, an all-time high. Israel offers a plethora of historical and religious sites, beach resorts, [[archaeological tourism]], [[heritage tourism]] and [[ecotourism]]. Israel has the highest number of museums per capita in the world. The most popular paid [[tourist attraction|site]] is [[Masada]].

Additional information

Annual data 2006 Historical averages (%) 2002–06
Population (m) – 7.1Population growth – 1.8
GDP per head (US$; purchasing power parity) – 27,588 Real GDP growth – 3.1
Percent of unemployed persons (May 2009) – 8.4%Inflation – 1.9
Exchange rate (av) NIS:US$ – 3.8Current-account balance (% of GDP) – 1.6

See also

*[[Silicon Wadi]] *[[Science and technology in Israel]] *[[Privatization in Israel]] *[[Taxation in Israel]] *[[Venture capital in Israel]] *[[Start-up Nation: The Story of Israel's Economic Miracle]] *[[Economy of the Middle East]] *[[List of countries by GDP (PPP) per capita]]

External links

* [ CIA World Factbook – Israel] * [ The Macro Center For Political Economics] * [ International Monetary Fund Israel Page] * [ U.S.-Israel Free Trade Area Agreement]


* [,dwp_uuid=50b45d26-5b63-11da-b221-0000779e2340.html Israel's economic growth defies experts] Tobias Buck, [[Financial Times]] * [ Trump upbeat on Israel's economy], [[Jerusalem Post]] * [ MSCI upgraded Israel from an emerging market to a developed market] * [,7340,L-3418550,00.htm Merrill Lynch: 7,200 millionaires living in Israel] * [ 'Israel could be one of world's most prosperous economies'], [[Jerusalem Post]]


* [ The Global Political Economy of Israel] * [[Dan Senor]] and [[Saul Singer]], [[Start-up Nation|Start-up Nation: The Story of Israel's Economic Miracle]] * Daniel Maman and Zeev Rosenhek, The Israeli Central Bank: Political Economy: Global Logics & Local Actors, Routledge, 2011. {{World Trade Organization}} {{Organisation for Economic Co-operation and Development}} {{Asia in topic|Economy of}} {{DEFAULTSORT:Economy Of Israel}}