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Israel Table of Contents


Changes in Industrial Structure

The industrial structure of the economy can be seen in terms of the allocation of GDP, employment, and foreign capital among the tradable, nontradable, semitradable, and service sectors. The tradable sector includes agriculture, manufacturing, and transportation; nontradables include public services and construction; and semitradables include business and financial services, commerce, tourism, and personal services. Public services include the activities of government, national institutions, and local authorities; education, research, and scientific organizations; health, religious, political, and trade-union groups; and defense.

Up to 1981, the economy allocated approximately 40 percent of its GDP to the tradable sector and about 33 to 35 percent to the nontradable sector. This distribution was mirrored in the allocation of civilian employment across the two sectors. The size of the public service sector in 1981 was 21 percent of GDP and 28 percent of civilian employment. Some economists argue that this latter figure is very high relative to the international norms for a developing country. They are not high, however, when compared to developed socialist countries in Europe. Some economists also argue that Israel's high level of nontradables can be explained by the high level of capital inflows from abroad, by a high demand for public services and construction as a result of immigration, and by defense needs.

From 1955 through 1972, the real output of tradables increased relative to that of nontradables. Most of this increase was attributable to the importance of physical capital in the form of machinery and increased productivity. After 1972 the importance of machinery declined, while that of labor increased. Educated workers were being absorbed into the public and financial services; simultaneously, manufacturing productivity was declining. Increased demand favored nontradables, and the share of tradables in both employment and output further declined. The overriding factor remained the rapid increase in the educated labor force.

Data as of December 1988