Research performed by Salem Abu Za’id of the Bank of Israel Research Department examines the link between the development of exports on the one hand and GDP (gross domestic product) and total factor productivity on the other.
Exports were found to provide a major impetus to Israel’s
economic growth. The author found that there was a long-term connection between the rise in exports and that in GDP in the period from 1960 to 2004.
The relationship was a causal one, and it can thus be determined that the rise in exports constitutes one of the most significant causes of Israel’s GDP growth.
The research also found that there was a long-term relationship between exports and TFP (total factor productivity). This too was a causal one: increased exports make a significant contribution to the rise in TFP.
This finding is supported by the fact that increased openness of the economy boosts the efficiency of and competition between domestic firms.
The research also found that a rise in imports also contributes to GDP growth, but not to a rise in TFP. This apparently reflects the increase in imports of machinery and equipment, capital goods which have a positive effect on GDP growth.
The study presents the contributions to the growth process made by the rise in the factors of production and the rise in productivity.
It was found that in the years 1994–2000 only 12 percent of growth can be attributed to the rise in productivity, compared to about 50 percent in the 1960s. The main impact on growth in 1994–2004 derived from the increase in labor input.
Reprinted by permission of The Israel Export and International Cooperation Institute
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