Contents

1.1 INTRODUCTION TO ISRAEL ECONOMY ................................................................................................... 1

1.2 ECONOMIC INDICATORS ......................................................................................................................... 1

1.3 COMPARISON WITH THE USA ECONOMY ............................................................................................... 3

1.4 CURRENT TRENDS IN ISRAEL ECONOMY ................................................................................................. 4

1.5 RESEARCH ARTICLE ................................................................................................................................. 4

1.6 REFERENCES ........................................................................................................................................... 5

 ECONOMY OF ISRAEL

1.1 Introduction:

The economy of Israel is advanced by global standards. Israel ranks within top 20 nations in
the world on the latest report of the UN's Human Development Index, which places it in the
category of "Very Highly Developed", allowing the country to enjoy a higher standard of
living than many other Western countries. The countries major economic sectors are high
technology and industrial manufacturing. The country is relatively poor in natural resources it
depends on other countries for petroleum, raw materials, wheat, motor vehicles, etc.

1.2 Economic Indicators

1. GDP

This chart is showing the growth rate

of GDP of Israel. The growth rate in
2019 is less compared to the growth
rate in 2017 and 2018 because on the
external front, exports of goods and
services bounced back reflecting
higher tourism and manufactured
goods receipts.

2. FDI(foreign direct investment)

Foreign direct investment is
increasing from the last five years;
Israel is the best place to invest
because of its people. There is no
other place with such high-quality
people with motivation and abilities
 and also limited natural resources, in terms of foreign trade Israel imports raw materials
such as crude oil, coal, raw diamonds, etc. and exports manufactured goods such as
polished diamonds, aircraft parts, pharmaceutical products, chemicals, electronics,
etc.

3. Imports
Israel is the 46th largest importer in the world. During the last five years, the imports
of Israel is increasing at a rate of 0.6% from 68.3 billion in 2012 to 69.5 billion in
2018. The reason for the increase in imports is less natural resources. Israel depends
on other countries for natural resources.

4. Inflation

The annual inflation rate in Israel

increased to 1.5 percent in May of 2019
from 1.3 percent in the previous month
and above market expectations of 1.4
percent. Inflation Rate in Israel averaged
28.88 percent from 1952 until 2019,
reaching an all-time high of 486.23
percent in November of 1984 and a record
low of -2.74 percent in March of 2004.
5. Unemployment

The seasonally adjusted unemployment rate in Israel decreased to 3.6 percent in May of 2019
from 3.8 percent in the previous month. It was the lowest jobless rate since January 2018, as
the number of unemployed fell by 7.8 thousand to 149.6 thousand while employment
declined by 14.6 thousand to 3,960 thousand.

1.3 Comparison with the USA Economy

GDP- the GDP of USA is better than Israel because the main reason for this is the import of
USA is more than Israel, so this is the main reason of the USA GDP is comparatively more.

FDI- U.S. foreign direct investment (FDI) in Israel (stock) was $26.7 billion in 2017 (latest
data available), a 158.3% increase from 2016. U.S. direct investment in Israel is led by
manufacturing, professional, scientific, and technical services, and information services.
Israel's FDI in the United States (stock) was $11.9 billion in 2017, down 2.8% from 2016.
Israel's direct investment in the U.S. is led by manufacturing, depository institutions, and
wholesale trade.

Exports- Exports were $18.4 billion; imports were $29.3 billion. The U.S. goods and
services trade deficit with Israel was $10.9 billion in 2017. Israel is currently our 23rd largest
goods trading partner with $35.5 billion in total (two way) goods trade during 2018.

Inflation- in Inflation Israel is standing in 170th place and the USA is standing 160th place in
the world economy. The inflation rate in Israel is 1.7% and the USA is 2.1% which is 24%
more than the inflation of Israel.
Unemployment- compared to the USA unemployment rate is very less because Not as many
people are in the labor force, so they aren’t counted in the unemployment rate and also the
economy is very good.

1.4 Current trend in Israel Economy

There was a sharp rise in GDP growth in Israel in the first quarter of 2019, According to the
first estimate, the economy grew 5.2% on an annualized basis in the first quarter. This
compares with 3.9% in the fourth quarter of 2018 and 2.8% in the third quarter of 2018.

After deducting the import of vehicles and the income from the tax on those vehicles, the
economy grew 3.7% in the first quarter of 2019 and 3% in the fourth quarter of 2018.

Expenditure on vehicles for private use grew almost 600% on an annualized basis in the first
quarter of 2019 after rising 40.4% in the preceding quarter, due to the imminent reduction of
tax benefits as part of the green tax law.

Business output rose 5.8% on an annualized basis in the first quarter of 2019, after rising
3.9% in the fourth quarter of 2018 and 2.5% in the third quarter of 2018.

Imports of goods and services rose 6.7% on an annualized basis in the first quarter of 2019
after rising 12.2% in the preceding quarter. Exports of goods and services grew 4.9% on an
annualized basis in the first quarter of 2019.
1.5 Articles review

1. Macroeconomic consequences of terror: theory and the case of Israel

This paper analyzes the effect of terror on the economy. Terror endangers life such that the
value of the future relative to the present is reduced. Hence, due to a rise in terror activity,
investment goes down, and in the long run income and consumption go down as well.
Governments can offset terror by putting tax revenues into the production of security. Facing
a tide in terror, a government that acts optimally increases the proportion of output spent on
defense but does not fully offset the tide. Thus, when terror peaks the long run equilibrium
with an optimizing government is of lower output and welfare. Next, we show that this theory
of terror and the economy helps to understand changes in trend and business cycle of the
Israeli economy. Had Israel not suffered from terror during the last 3 years, we estimate that
the output per capita would have been 10% higher than it is today.

2. The Effect of Fiscal Policy and its Components on GDP in Israel

This paper is the first attempt to use the VAR technique to investigate the effect of fiscal
policy in Israel on GDP, aggregate demand in the private sector, private consumption and
private investment. Various components of public consumption have different effects. A
positive shock in government local defense consumption has a moderate but persistence
effect, in contrast with a positive shock in civilian government consumption, which has a
sharp but short-term effect. A positive shock in public sector purchases has a more persistent
and larger effect than that of a positive shock in total public sector wages.
Reference

Zvi Eckstein, & Daniel Tsiddon. (2004, August). Macroeconomic consequences of terror:
theory and the case of Israel. Retrieved August 2004, from
https://www.sciencedirect.com/science/article/pii/S0304393204000546?via%3DihubMazar

Yuval Mazar. (2012, December 20). The Effect of Fiscal Policy and its Components on GDP
in Israel. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2191622

Israeli economy grew at 5.2% in Q1 2019. (2019, May 16). Retrieved from
https://en.globes.co.il/en/article-israeli-economy-grew-at-52-in-q1-2019-1001285942

Israel. (2019). Retrieved from https://data.worldbank.org/country/israel