Abstract:

In this paper we use the framework designed by Michael Bruno for analyzing the growth process in Israel after 1985. This framework distinguishes between temporarty factors like the impact of previous USSR immigration at the beginning of the nineties, the Hi-Tech bubble of 2000 and security shocks like the second Intifada; and permanent factors like the size of general government sector and tax burden, the flexibility of the labor market and other factors that have an impact on firms profitability. We find that dynamics of growth was mainly dictated by transitory variables, that dominated underlying long-term forces. We discuss possible reforms that enhance the  path to sustainable growth.