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 U.S. 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 135 companies listed on the NASDAQ, the fourth most companies after the United States, Canada, and China. 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 government of Israel proposed changes to the judicial system in early 2023 that critics said could weaken checks and balances, the rule of law, and property rights. The government claimed the changes would reduce the number of frivolous lawsuits that allegedly slow down major investment projects, but many economists and business leaders predicted that, if implemented, the changes would dramatically reduce investment in Israel and hurt economic prospects. Several Israeli tech companies announced the withdrawal of funds from the country in response to the proposed reforms. Economists estimate that billions of dollars in personal savings and potential investment left the country within a few weeks of the proposal. Following weeks of sustained popular protests, the government paused the legislative changes and agreed to meet with the opposition for talks aimed at reaching a compromise. In May 2023, the two sides were still in discussions and the legislation has not progressed further.
The COVID-19 pandemic shook Israel’s economy, but successful pre-pandemic economic policy buffers – strong growth, low debt, a resilient tech sector among them – mean Israel entered the COVID-19 crisis with relatively low vulnerabilities, according to the International Monetary Fund’s Staff Report for the 2020 Article IV Consultation. The fundamentals of the Israeli economy remain strong, and Israel’s economy rebounded strongly post-pandemic with 8.1 percent GDP growth in 2021 and 6.5 percent in 2022. With low inflation and fiscal deficits that have usually met targets pre-pandemic, 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 and services that reached USD 51.8 billion in 2022, according to the U.S. Bureau of Economic Analysis, and extensive commercial ties, particularly in high-tech and R&D. The total stock of U.S. foreign direct investment (FDI) in Israel was USD 41.3 billion in 2021. Since the signing of the U.S.-Israel Free Trade Agreement in 1985, 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 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, particularly in agricultural products.
Israel has taken steps to meet its pledges to reduce greenhouse gas emissions, with planned investments in technologies and projects to slow the pace of climate change.
|TI Corruption Perceptions Index||2022||31 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2022||16 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2021||41,300||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2021||$49,290||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD|