Engines for Growth
Prof. Zvi Eckstein, Deputy Governor, Bank of Israel
2008 Herzliya Conference
The Trend of GDP over time
90
Ratio of Israel/US GDP (left)
70
80
Real per capita GDP in Israel (right)
70
60
60
50
50
40
%
40
30 The main reasons for lower output :
30
20
20
Employment: 10% lower.
10
SOURCE: Eckstein & Tsiddon (2004), Heston, Summers & Aten (2006), CBS.
Forecast for 2007 and 2008
2006
2002
1998
1994
1990
1986
1982
1978
1974
1970
1966
1962
1958
1954
1950
1946
1942
1934
1930
1926
1922
0
1938
Productivity per worker: 25% lower.
10
0
NIS (Thousands, 2000 prices)
80
GDP Growth and the Unemployment Rate
(percent)
12
10
8
6
4
2
0
GDP growth
*forecast
20
08
*
20
07
*
20
06
20
05
20
04
20
03
20
02
20
01
20
00
-2
Unemployment rate
Source: CBS and BOI
Gross Public Debt
(percent of GDP)
300
284
250
200
199
150
81
100
50
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
0
20 6
08
*
0
*forecast
Source: CBS and BOI
Public Expenditure and Public Deficit
(Percent of GDP)
90
25
80
20
70
60
15
10
%
%
50
40
30
5
20
0
10
Total public expenditure
Source: CBS and BOI
*
08
20
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
-5
19
19
70
0
Public deficit (right scale)
*forecast
Inflation Expectations and Inflation Target
7
6
5
%
4
3
2
1
0
2001
2002
2003
2004
2005
2006
Expected breakeven inflation (1yr.)
Inflation target
Expected breakeven inflation (10yr.)
Source: CBS and BOI
2007
Microeconomic Aspects of Growth
GDP per Capita = Productivity x Employment rate
 Focusing on increasing employment and reducing
poverty
–
–
–
–
From welfare to work
Negative income tax
Non-Israeli workers
Enforcement of labor laws
 Increasing labor productivity
– Focusing on traditional industries
GDP per Worker, Capital per Worker, Total Factor
Productivity and R&D Expenditure
(Israel vs. USA, 1995-2002 averages)
Israel to USA ratio (%)
GDP per capita (USA, $ PPP) Y/L
TFP
K/L
R&D
Mining and digging, wood and its
products, non-metal minerals
60,892
85
32
230
96
Food, beverages, tobacco
87,851
49
72
140
38
Textile, clothing, leather products,
paper goods, publishing and printing
62,999
52
44
80
24
Rubber products and plastic
62,317
79
26
151
44
Basic metal and products
71,054
57
42
76
58
Total traditional and semi traditional
industries
71,636
56
44
97
41
Chemicals and oil refining
177,457
54
80
100
94
Machines, equipment and transport
84,050
63
96
71
50
Traditional industry and mid-tec
94,231
53
52
89
43
Electric and optical equipment
88,319
89
66
102
113
Total industry
93,472
63
59
94
98
Thank you!