The Economy of Israel

Table of Content

Brief Summary

            There is no doubt that since Israel gained its independence in 1948, the country has gone a long way from a third world economy to a first world economy of $120 billion. From a mere 650,000 Jews in 1948, Israel’s population has grown to 5,200,000 today. Although from the beginning, the country had to rely on aid coming from Diaspora whose tens of billions of dollars contribution facilitated Israel’s economic rise, but today, as Jonathan Adelman pointed out, Diaspora aid has significantly declined and it only now accounts for no more than two percent Adelman, p. 21). Joseph Golovaty noted that during Israel’s first 25 years, it carried out large infrastructure projects such as roads and bridges which had greatly contributed to Israel’s rapid economic growth.  Golovaty also noted that in the recent World Trade Organization’s review of Israel’s Trade Policy, it found the country had significantly progressed under the support of legislation and free trade agreements (Golovaty, p. 11).

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            Today, Israel has free trade agreements with the European Union and the United States, as well as with Canada, Hungary, Czech Republic, Poland, the Slovak Republic, Jordan, Turkey and Slovenia. With these agreements, Israel is heading towards continued economic growth despite of current political conflict with its neighbors Lebanon and Palestine.


From the most recent data from OECD published in the internet, Israel enjoyed relatively low unemployment rate since the year 2000 up to 2006 for both the native born men and women and for foreign born men and women, and zero unemployment in 2007 for both category. In an IMF Country Report dated February 2008, the IMF cited that Israel’s strong macroeconomic conditions and excellent domestic policies greatly improved the Countries growth performance fostering a GDP growth rate of about 5% in 2006 and 2007 despite of global economic slowdown. This growth propelled by exports and investments fostered strong employment growth that further reduced unemployment in Israel (IMF Report, p. 3).

Israel’s economic performance

            Despite of the wars that Israel has fought since it gained independence in 1948 and the country’s continuing threats not only from international terrorists but also from its neighboring militant organization; the Hamas and Hezbollah, and is in a formal state of war currently with Syria and Lebanon, Israel has experienced strong economic performance posting an annual Gross Domestic Product of $104.1 billion. Linda Sharaby pointed out that in 2000; Israel’s economic performance exceeded that of Spain, Portugal, Greece, and New Zealand (Sharaby, par. 3). Because of the countries strong economic performance, the World Bank no longer classified Israel as a developing country, and the country is now rank as “high income economy” as is now recognized as among the most global emerging economy by Foreign Policy Magazine’s Globalization Index (Sharaby, p. 3).

            One question that might be asked is how could a young nation gain such a remarkable economic success in view of its political instability and unsecured economy? The most significant factor perhaps for Israel’s remarkable economic success stemmed from the 1956 war known as “Sinai campaign” in which Israel joined forces with Britain and France in attacking Egypt. After the war, the country experienced a mini-economic boom which resulted to the decline of unemployment, growth in productivity, and an improved balance of payments. This was also the case during the 1967 war in which Israel had greatly benefited from the war. Sharaby noted that after the 1967 war, unemployment was again greatly reduced and it encourages the rise of private consumption as productivity (Sharaby). Thus, Israel’s path of remarkable economic growth began in the 1950s and it continued through the 1960s. Indeed as early as 1968, the World Bank mission to Israel affirmed the countries ‘economic miracle.’

Economic stability

            Given the sustained economic growth since the early 1950s, there is no doubt that Israel is enjoying a strong and stable economy. Arnots Asa-El noted that though Israel had also experienced severe economic debacle, but it is now just a thing of the past, all is history. Today, as Asa-El noted, the country is proud of its solid economy with its Gross domestic product grew by 5.4 % of 2008 (Asa-El par. 7). Citing the bank of Israel as it addresses global economic cries, Joel Leyden noted that Israel’s financial institutions are stable and is geared up to assist banks for the protection of its depositors despite of the current global financial crises (Leyden). Leyden further noted that Israel’s financial institutions such as banks were less exposed in the global crises and therefore remains sound and unaffected by the crises.

            According to a document entitled Bank of Israel Annual Report 2007 Sound economic policy and favorable background condition yielded positive developments responsible for the for the5.3 percent growth in GDP in 2007. As a result, unemployment sunk to its lowest level in a 2000, and it facilitated rapid expansion of exports.

            The report cited that the countries economic stability and the continued improvements “in the state of economy” were reflected in the OECD’s decision to invite Israel to facilitate procedure in joining the organization (Bank of Israel Annual Report) and in the country’s raised credit ratings. Further evidence of the country’s economic stability is seen in the flourishing capital market, the eradication of budget deficits, and through sustained expenditures and reduced tax rates (Bank of Israel Annual Report). Moreover, in the document entitled Prime Minister’s Office cited that Israel’s economic strength and stability is reflected through its impressive macro-economic data. This data includes price stability, remarkable surplus in the balance of payments, impressive growth rate, and sharp drop in the debt compared to GDP (Prime Minister’s Office).

Current Socio economic agenda

            Despite of Israel’s tremendous and sustained economic growth, the country still need to address issues on poverty reduction, sustaining economic growth, improving all levels of education, and strengthening its emphasis on science and technology research. On the domestic issues, children living under the poverty line are approximately at 35% and the prevalent poverty poses a serious threat to the economic prosperity in the near future (Prime Minister’s Office). One of the problems identified in the issue of poverty is the lack of suitable employment. According to the document, the consequence of this problem is that it erodes productivity both in traditional industries and the service sector which are two of the largest employers in the economy (Prime Minister Office).

            Dina Kraft noted that among the social agenda faced by Israel are the rising prices of staple foods such as meat, rice, and vegetables. Kraft pointed out that food security “is a growing problem” in Israel as a result of the failure of the traditional social safety nets to address the problem (Kraft) resulting to subsistence of most families on less nutritious foods.

            The economic development in Israel is no doubt remarkable although they also have to contend social issues affecting the economy such as poverty. However, the government is doing its best to address such issues. In a Document entitled “Implementing Agenda 21 in Israel: National Assessment, it stated that the government implements policies aimed at generating an efficient economy (Implementing Agenda 21 in Israel). This includes trade and foreign exchange liberalization and the reduction of state subsidies and budget deficits. The trade liberalization can be expected to improve and establish trade relations among other countries that would generate more economic benefits for the country to sustain its efforts of addressing the social issues.

            In order for the government to address effectively the issue of poverty, the document stated that the Israeli government had set up a Public Council for Reducing Gaps in Society and War on Poverty. This Council is task to examine social and economic distress on finding-at risk populations, identify needs, allocate specific resources to particular sector in dire needs, and encourage social initiatives for project development particularly at the local level (Implementing Agenda 21). With sound economic policies, sustained economic growth, improved trade relations, favorable economic condition, and reduced budget deficits, it is obvious that the country is heading for a better economic future and to a full membership to OECD.

Apparently, Israel had already abandoned its dependency on the billion dollars assistance coming from Jews in Diaspora. Israel had proven it self as a capable and self sufficient economy and is worthy of its identity as ‘one of the most global emerging economy.’ Its remarkable economic performance despite of the wars the country had faced since it gained independence in 1948 up to the present, is a clear evidence of the countries economic stability and sustainability as well as of its capability of addressing its social and economic agenda.

Work Cited

Adelman, Jonathan R. The Rise of Israel USA: Rutledge, 2008

Asa-El, Arnots “Global Inflation Tests Israel’s Economy” The Wall Street Journal July 18, 2008{65D5C356-5C6C-4FB7-95C7-1924E7FD0CA1}

Golovate, Joseph Identifying Complementary Measures to Ensure the Maximum Realization of Benefits from  the Libereralization of Environmental Goods and Services Case Study: Israel OECD Trade and Environment Working Paper, October 2006.

Implementing Agenda 21 in Israel: National Assessment  Jerusalem march 2002

Kraft, Dina “Food Prices Squeeze Israel’s Needy” Jewish July 21, 2008

Leyden, Joel Bank of Israel Addresses Global, Israel Economy Crisis October 22, 2008

Socio-Economic Agenda, Israel 2008-2010  Prime Minister’s Office Israel 2009

Sharaby, Linda “Israel’s Economic Growth: Success without Security” MERIA Volume 6, No. 3 September 2002

Staff Report For the 2007 Article IV Consultation The IMF Country Report February 2008

The Economy and Economic Policy Bank of Israel Annual Report, 2007


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The Economy of Israel. (2017, Feb 12). Retrieved from

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