BOI study: Exports drive economic growth [pg. 18]

Israel's exports constitute one of the driving forces behind its economic growth, a new report by the Bank of Israel concludes. The report, by BOI researcher Salem Abu Za'id is one of the first studies to examine the effects of the country's exports on its gross domestic product, or GDP, and conclusively proves that there exists a strong positive and causal link between Israel's exports and the strength of its GDP. One of the reasons for the correlation is that exporters face stiff global competition, forcing them to maximize their productivity in the most efficient manner. A country's productivity, the study notes, also correlates positively to its GDP. Economists determine a country's Total Factor Productivity (TFP) by examining the combination of capital and labor in the market. By these parameters, Israel's productivity comprised only 12 percent of its GDP in the last decade, down from nearly 50% in the 1960s, the study documents. Such a decrease is not cause for alarm, researchers at the BOI explained, as high productivity typically characterizes young countries since their ability to increase capacity is much higher than more established countries. Israel's exports, in fact increased by 8.9% (excluding diamonds) in 2006 from 2005 for a total of $52 billion. Exports of technology and goods services helped to boost the growth. Although the BOI sponsors such studies through its research department, it says the views expressed in the studies do not always reflect those of the central bank.