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Introduction

OECD works with the prime motive of providing information on a wider range of topics to provide assistance to the government and other institutions of a member country to formulate appropriate polices that can help them to foster growth and stability in the economy. This report analyzes the major indicators of economic performance of Israel. The data of major economic indicators of Israel are collected from OECD and can be used to analyze how the growth and performance of the country can be improved based on its reports. There are variety of economic indicators like agriculture, energy, finance, governmental interference, employment, technology and research, health and environment on the basis of which OECD analyzes the performance and growth of Israel. The report also provides a relative framework for understanding the role of government and local organisations in their contribution towards long term growth and efficiency of the economy.

 

1.0 Economic Principles and Theories that Regulate the Growth of Israel

The basic economic theories of demand and supply mechanism cost of production and elasticity of demand and supply contributes towards organisational and business thinking of a country. It is a challenge for the economists to explain how countries prosper in terms of GDP even if there was prevailing poverty and unemployment. A country’s GDP is facilitated by the division of labour and better organisational structure of the major sectors of the economy (Rader, 2014). The general economic theory of market states thatrise in aggregate demand in an economy can lead to rise in price level and supply which ensures market equilibrium (Dosi, Fagiolo and Roventini, 2010). The neo-classical theory which gives importance to the state intervention in restoration of market equilibrium in the economy is relevant for Israel as the government plays a principal role in performance of the market. Israel has now emerged as a developed economy instead of global economic crisis, due to substantial government support and participation. According to Boianovsky and Hoover (2009), the growth models of Kaldor and Young explains the concepts of increasing returns to scale and implications of knowledge on the productivity of an economy. The major drivers of growth in the Israel economy are advancement in technology and science through investment which have resulted in the development of manufacturing and agricultural sectors. The growth rate remained high at 3.5 % in the current year, which indicates rise in the production, investment and government spending (OECD, 2015b).

 

1.1 The Role of Economics towards Organisational and Business Thinking

The organisational and business structure of an economy is regulated by a number of factors like cost of production, supply of factors, government incentives, rate of investment etc. The economic growth of Israel depends on the organisational structure of their business institutions. The fall in the general price level and interest rates, increase in labour force participation and regulation of wage policies are expected to have a superior impact on the production of the economy (OECD, 2015a). The increased government expenditure on the infrastructure like public transport, natural gas supply network and education has led to an increase in the private investment. The growth model of Solow can be used in this context to explain the rising GDP of emerging countries like Israel due to investment (Engel, J. S. and del-Palacio, 2011). It shows that with more capital investment and growth in the labour force, the economy move towards steady state equilibrium in the long run (OECD, 2015a). This highlights the fact that, with rising national income accompanied by investments in capital stock fostered the growth of the country over time. Its output growth is close to other developed OECD economies that explains the catch up effect of smaller economies (Dosi, Fagiolo, and Roventini, 2010) which means with larger investments over time a smaller country is bound to catch-up the growth rate of the advanced economies. Another factor that contributed to the economic growth of Israel is its rich natural resource of Oil. A country like Israel which is already experiencing a positive growth rate can easily afford further investments in research and technology which can be utilised for exploring its natural gas reserves.

 

2.0 Relationship between Macro and Microeconomic Theories

The role of micro and macro economic theory is crucial in explaining a country’s growth perspective and future potential. The growth of a country in the long run is determined by a number of factors in the economy like human capital, investment in research and technological advances. The trade and integration of Israel with the world economy has also helped the country to attain positive growth rate as that have led to rise in the national income because of increase in the earnings of foreign income (North, 2012). The GDP is the most important economic indicator of country’s economic activities and Israel has been showing positive growth with very little fluctuations in GDP since past years. The GDP of Israel has been growing at a rate of 1.9 % in 2014 and expected to grow at higher rate in the next years. The factors like PPP (Purchasing Power Parity), income inequality, unemployment, rate of taxation and capital flow into the country influence the growth and productivity of an economy. The major contributing factors of economic growth in Israel are the increase in the purchasing power of households due to reduction in the personal tax rate and high rate of employment. The unemployment rate is 6.7 % of total labour forces of Israel which is lower than average unemployment rate of OECD (OECD, 2015b). The reduction in the public debt as a part of fiscal policies of their government has led to fall in fiscal deficit of the country.

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