The grim events of the last couple of weeks, and a note from a reader last week about a short post I’d written several years ago comparing the economic performance of Israel and New Zealand, prompted me to take another look at the data.

This was the chart from the earlier (2018) post

As I summed it up then “We’ve done badly, and they’ve done even worse”.

Given the inevitable margins for error, especially in estimating PPP conversion rates, the main story was just that neither country had done very well relative to other advanced economies.

How do things look now? I’ve shifted over to using OECD data (for a number of reasons, including that the Conference Board estimates now only start from 1990 for both countries).

This chart shows the ratio of New Zealand’s real GDP per hour worked to that of Israel (both series also converted at PPP exchange rates).

The last few years seem to have been quite good for Israel’s productivity growth, but I wouldn’t put too much weight on it yet. Not only has this ratio fluctuated over the years with no clear trend, but the biggest single lift in Israel’s reported productivity was for 2020 – the year of the lockdowns, when many countries saw a rise in measured average productivity (as eg low-paying low-productivity tourist jobs were lost) – and more recently many countries (including New Zealand) have seen a reversion to trend. (And it seems unlikely that the final quarter of 2023 is going to be a stellar one for Israeli average productivity.)

The wider story remains one in which both New Zealand and Israel are productivity laggards. In this chart, again using OECD data, I’ve shown the average for New Zealand and Israel relative to eight leading (on productivity) OECD economies (Belgium, Denmark, France, Germany, Netherlands, Sweden, Switzerland and the US).

It would take a 60 per cent lift for New Zealand and Israel to match the average of those eight leading economies. Neither New Zealand nor Israel is a high-performing economy.

As for GDP per capita comparisons, depending on which data source one turns to the time series charts look a little different, but all three (OECD, IMF, and Conference Board) suggest that GDP per capita in the two countries is much the same. Here is a chart of the OECD data

Historically – and now – the two countries have had very similar rates of investment as a share of GDP, but increasingly divergent national savings rate patterns

The difference is reflected in quite different current account outcomes (Israel’s last current account deficit was in 2001).

But if Israel never seems to manage a better economic performance than laggard New Zealand for long, by regional standards it remains the stellar performer.

For real GDP per hour worked, here are the Conference Board estimates for Israel and (a) its immediate neighbours, and (b) its nemesis, Iran

And here are the IMF estimates for real GDP per capita for the same group of countries, plus an estimate for West Bank and Gaza. (The IMF doesn’t have a current estimate for Syria so I’ve used the ratio of Syria to Lebanon in the Conference Board database. Before the civil war, Syria was still materially less productive than either Lebanon or Jordan).

The economic performance gaps here are materially larger than those (above) for productivity.

(In case anyone is wondering about the oil and gas rich countries of the Arabian Peninsula, the Conference Board productivity estimates for those countries, they are mostly around the current estimates for Israel (and for New Zealand).

Israel is the star economic performer in its sub-region, but that can’t be any cause of complacency given how far behind it lags the leading advanced economies.

And in the longer run, much as I champion and support Israel including as the only functioning democracy in its part of the world, I struggle to be optimistic about its long-term prospects. This was from my 2018 post.

Israel has not lost any of the wars it has fought. But it has to keep doing so indefinitely.

I’m out of town this morning, so just something brief and prescheduled:

Israel has been in the media a lot this week.  Much of that has been about the confrontation on the Gaza border.

But it has also been the 70th anniversary of the founding of the state of Israel.  In many respects it is an astonishing achievement, even if I remain sceptical of its longevity.  Sadly, demography and history seem to be against them.  Demography? 400 million Arabs and 80 million Iranians, few of whom seem reconciled to the idea of a permanent state of Israel.  History?  Well, the Crusader states lasted longer than 70 years, but were wiped out.  More recently, Smyrna (let alone the cleansing of the millenia-old Jewish community in Baghdad).

But the economic achievement of Israel can be, and often is, overstated. I noted on Kiwiblog the other day, a celebratory post, including this

In 70 years, Israel has become one of the world’s leading scientific and technological companies[countries?]. 45 of their top inventions are listed here.

12 Israelis have won Nobel Prizes – one literature, three peace, two economics, six chemistry. (Note a further 155 Jews in other countries have won a Nobel Prize, comprising 22% of all nobel prizes since 1901 despite being just 0.25% of the world’s population).

A few of their inventions are:

• cellphones
• Intel chips
• ICQ
• Polio vaccine
• antivirus software
• ingestible video cameras for cancer detection
• USB flash drives

All of which is pretty impressive.  But what does it amount at an economywide level?

As regular readers will know I frequently point out that over recent decades New Zealand’s cumulative growth in productivity (real GDP per hour worked) has been lower than in almost all other OECD countries.  And we started below the average and had been aiming to catch up.

But how has Israel done by comparison?  This chart just shows the ratio of real GDP per hour worked for New Zealand and Israel relative to that of the United States (as a representative high productivity OECD economy), starting from 1981 because that is when the Israel data starts.

We’ve done badly, and they’ve done even worse.

I’m sure there are all sorts of explanations.  For example, Israel spends a large chunk of its GDP on defence and security, and even if that demand spurs innovations in some specific industries, it is unlikely to be a long-term positive for economywide productivity.  As I’ve pointed out previously, Israel is also remote – albeit in different ways to New Zealand: political barriers, security fears etc, limit the opportunities for trade and investment.   And Israel doesn’t exactly have the least heavily-regulated economy in the OECD.

But it is also hard to go past the elephant in the room.  To listen to the advocates of economic benefits of immigration, Israel should really the poster-child, the unquestionable success story.  Any Jewish person anywhere can move to Israel and claim citizenship, and large numbers have.  Population growth in Israel in recent decades has been faster than anywhere else in the OECD –  partly birth rates and partly migration – and (for whatever reason) Jewish people tend to come quite highly-skilled.   That part of the population growth has probably been a boon from a defence and security perspective, and of course the Law of Return is pretty fundamental to Israel’s sense of national identity, and its founding purpose.

But evidence of economic gains appears elusive.