Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in American companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has the third most companies listed on the NASDAQ, after the United States and China. Various Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.
The fundamentals of the Israeli economy are strong, and the economy proved flexible and adaptable through the worldwide financial crisis. A 2018 International Monetary Fund (IMF) report said Israel’s economy is thriving, enjoying solid growth and historically low unemployment. With low inflation and fiscal deficits that have usually met targets, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel, through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.
The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods that reached USD 35.4 billion in 2018, according to the U.S. Census Bureau, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 39.3 billion in 2017, according to the U.S. Department of Commerce. This year marks the 34th anniversary of the U.S.-Israel Free Trade Agreement (FTA), the United States’ first-ever FTA. Since the signing of the FTA, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, open, and led by a cutting-edge high-tech sector.
The Israeli government generally continues to take slow, deliberate actions to remove some trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies, usually in favor of domestic producers.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||34 of 180||https://www.transparency.org/country/ISR|
|World Bank’s Doing Business Report||2019||49 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||11 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2018||$26,700||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$37,270||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|