Working Paper: NBER ID: w22567
Authors: Assaf Razin; Steven Rosefielde
Abstract: The global economy has been buffeted by several unprecedented economic events during the past 35 years. We survey the impact of these events on Israel’s development, institutions, and economic policies. Israel had a remarkable development during this time, from a low income high-inflation developing economy in the 1970s, to a medium to high income stable- inflation advanced economy in the 2000s, while increasingly integrated into the world economy. The extraordinary events surveyed include: (1) The collapse of the Soviet Union and the massive immigration to Israel which followed; (2) The Great Moderation in inflation and employment fluctuations in the advanced economies; (3) The 2008 global financial crisis, epi-centered in the US, and the contagion of the financial crisis to Europe; and (4) The rise of East Asia high-growth economies.\nModerating spillovers from the advanced economies during the Great Moderation, the global information technology revolution, the influx of skilled immigrants from the former Soviet Union, the gradual buildup of robust and well-regulated financial institutions over decades after the hyper-inflation crisis, and the deep and extensive integration into the global economy, all provided the Israeli economy with an entry “ticket” to the OECD; the 35-member group of the world advanced economies. It came, however at a cost of rising income inequality.
Keywords: Israel; Global Economy; Immigration; Income Inequality; Economic Development
JEL Codes: F41; N90
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| influx of skilled immigrants from the former Soviet Union (FSU) (F22) | disposable income inequality (D31) |
| welfare state regressive turn (P16) | disposable income inequality (D31) |
| higher educational attainment of new immigrants (I25) | labor income (J39) |
| labor income (J39) | disposable income inequality (D31) |
| Great Moderation (E65) | Israel's integration into the global economy (F15) |
| Israel's integration into the global economy (F15) | economic transformation from low-income to high-income economy (O53) |
| economic transformation (P27) | rising income inequality (D31) |
| 2008 global financial crisis (F65) | contagion effect on Europe (F65) |
| 2008 global financial crisis (F65) | Israel's economic performance (O57) |
| robust financial and monetary institutions (E02) | success of Israel's economy post-crisis (H12) |