The Association of Banks in Israel

What Are the Main Factors Affecting Israel’s Exports and What Are Their Contributions to Economic Activity?

Arie Tal

Israel is a small open economy, with exports of goods and services accounting for about 30 percent of gross domestic
product. In this study we examined the extent to which several factors affect export growth using econometric models of
the OLS type. We found that the main independent variable influencing exports is global growth, especially growth
among Israel's major trading partners, including the United States and some major European economies. At the same
time, we found that the impact of the exchange rate on exports is small relative to the variable of global growth. The effect
of the real-effective exchange rate of the shekel, which is characterized by the appreciation against the global currency
basket in recent years, of exports of services appears to be smaller than the effect of the exchange rate on exports of goods.
In our assessment and other international economic institutions, global economic activity is expected to continue to
expand at a moderate pace, which may support growth in Israeli exports this year and probably next year as well.
In addition, as noted above, the appreciation of the exchange rate of the shekel has a greater impact on exports of
goods than on exports of services, and was one of the factors that weighed on Israel's competitiveness in the world.
This, along with other factors that weigh on the competitiveness of Israel's goods and services and the decrease in the
ease of doing business in Israel. We believe that there is a need for long-term government programs aimed at
improving the business environment in Israel and supporting a range of factors that could improve the level of
productivity in Israel as well as the degree of competitiveness.