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Hardcover | ISBN: 9780262025188 | 546 pp. | 7 x 9 in | 92 illus., 1 halftone| September 2002

The Israeli Economy, 1985–1998

From Government Intervention to Market Economics


From 1973 to 1985, the Israeli economy suffered a deep crisis: the growth rate declined, foreign debt increased, and inflation soared to annual rates of a few hundred percent. This book analyzes the structural reforms initiated between 1985 and 1998 that transformed the Israeli economy from one of heavy government intervention to a market-oriented, open economy. The reforms introduced fiscal discipline, increased central bank independence, and reduced government intervention in capital, labor, and financial markets. Also, competition was fostered in monopoly-controlled markets. The results of these reforms include, among others: a decline from 77 percent to 55 percent in the government expenditure portion of the gross domestic product, a decline from 65 percent of credit volume to 5 percent in government involvement in directing credit, and almost complete elimination of the tight control of the foreign-exchange market. These reforms, together with the mass migration into Israel from the former Soviet Union and the peace process with Israel’s neighbors, accelerated economic growth, particularly in the business sector.Topics discussed include the impact of macroeconomic policy and structural reforms on growth, employment, inflation, balance of payments, and the rapid expansion of high-tech industry. The book also examines the consequent increase in income inequality and related problems.

About the Author

Avi Ben-Bassat is Professor of Economics at the Hebrew University of Jerusalem. From 1999 to 2001, he was Director General of Israel’s Ministry of Finance.


"Nick Stern is a master of development theory and practice. Together with Jean-Jacques Dethier and F. Halsey Rogers, he gives us in this volume the fruits of his experience and wisdom, proposing a growth strategy based on creating the right climate for investment and on empowering people. And then he tells us who needs to do what and when -- mostly very soon -- to implement the strategy and thereby accelerate development"--Stanley Fischer, Vice Chairman, Citigroup

"Barter contracts are more prevalent in international trade than one would expect, and they play a prominent role in transition economies. Dalia Marin and Monika Schnitzer use sophisticated theory to shed light on this phenomenon, and test their theoretical predictions with rich data sets. This is a first-rate monograph."--Elhanan Helpman, Department of Economics, Harvard University, and The Eitan Berglas School of Economics, Tel Aviv University

"Knowledge, which is hard to measure, is the core of modern economic growth. Jaffe and Trajtenberg have assembled the most comprehensive data set on patent citations, which allows them to trace major channels of knowledge creation. This outstanding book, which describes these data and puts them to good use, is a landmark in research on innovation and economic growth."--Elhanan Helpman, Department of Economics, Harvard University, and The Eitan Berglas School of Economics, Tel Aviv University

"Following high inflation in the early eighties, Israel implemented one of the most successful stabilization programs. And following the breakdown of the former Soviet Union, Israel successfully absorbed an unprecedented inflow of new immigrants in the ninties. This book provides an excellent account of these episodes, as well as of a host of other interesting issues in the transformation of Israel's economy. It will be of major interest not only to those who seek to understand the development of the Israeli economy but also to those who seek to understand how economies adjust to large shocks."--Elhanan Helpman, Department of Economics, Harvard University, and The Eitan Berglas School of Economics, Tel Aviv UniversityPlease note: Endorser gives permission to excerpt from quote.

"This is a comprehensive and interesting set of papers on the Israeli economy and its history."--Stanley Fischer, Vice Chairman, Citigroup