Engines for Growth Prof. Zvi Eckstein, Deputy Governor, Bank of Israel 2008 Herzliya Conference

The Trend of GDP over time SOURCE: Eckstein & Tsiddon (2004), Heston, Summers & Aten (2006), CBS. Forecast for 2007 and 2008 The main reasons for lower output : Employment: 10% lower. Productivity per worker: 25% lower.

GDP Growth and the Unemployment Rate (percent) *forecast Source: CBS and BOI

Gross Public Debt (percent of GDP) *forecast Source: CBS and BOI

Public Expenditure and Public Deficit (Percent of GDP) Source: CBS and BOI *forecast

Inflation Expectations and Inflation Target Source: CBS and BOI

Microeconomic Aspects of Growth x Employment rate Productivity = GDP per Capita 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, averages) Israel to USA ratio (%) R&DK/LTFPY/LGDP per capita (USA, $ PPP) ,892 Mining and digging, wood and its products, non-metal minerals ,851 Food, beverages, tobacco ,999 Textile, clothing, leather products, paper goods, publishing and printing ,317 Rubber products and plastic ,054 Basic metal and products ,636 Total traditional and semi traditional industries ,457 Chemicals and oil refining ,050 Machines, equipment and transport ,231 Traditional industry and mid-tec ,319 Electric and optical equipment ,472 Total industry

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