Working Paper: NBER ID: w25351
Authors: Assaf Razin
Abstract: Large capital inflows are understandably viewed as dangerous in emerging markets living with memories of recent currency crises: in Israel foreign capital provided crucial funding for investment in the country’s showcase technology sector. Israel is now solidly established as a high-tech powerhouse—a place where budding venture capitalists from emerging market countries flock to learn how to develop an innovation ecosystem. However, the domestic market alone is far too small and homegrown capital formation insufficient to foster that innovation. Globalization has been essential. The paper reviews the crucial role which globalization forces played Israel’s transformation from low tech to high tech economy. Special emphasis is placed on foreign direct investment as a driver for the high-tech transformation.
Keywords: Foreign Direct Investment; High-Tech Sector; Globalization; Israel; Venture Capital
JEL Codes: F21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FDI (F23) | investment in high-tech (L63) |
| globalization (F60) | FDI (F23) |
| FDI (F23) | growth of high-tech sector (O39) |
| FDI (F23) | increased R&D (O32) |
| increased R&D (O39) | enhanced innovation (O36) |
| institutional quality (L15) | productivity outcomes (O49) |