Israel’s founding economy in 1948 was tied to both Jewish history in Europe and the entire Zionist enterprise. Later, the Israeli economy would be built on connecting a highly educated people to the land of Israel.
Having been minorities in the diaspora, Jews in Palestine wanted to end reliance on non-Jewish populations. Social and economic transformations grew as early immigrants brought their socialist ideals. Established initially in agriculture, Zionists gradually developed small trades in major urban areas. While some immigrants came as capitalists, the socialist zeal of Israel’s founding majority dominated economic growth well into the 1970s. Under the British Mandate, export and import trade was limited. It had the effect of stimulating self-sufficiency. Violent Arab outbreaks catalyzed Arab and Jewish separatism demographically and economically. Wage and investment levels and national incomes per capita, greatly elevated the Jewish over the Arab economy.
Israel GDP and Population
| Year | GDP in 2005 prices ($ Billion) | Population (Million) | GDP/head ($) | % Change between dates |
| 1950 | 4.6 | 1.30 | 3,358 | — |
| 1970 | 29.4 | 2.97 | 9,899 | 195% |
| 1990 | 70.9 | 4.66 | 15,215 | 54% |
| 2005 | 131.00 | 6.93 | 18,906 | 24% |
| 2013 | 257,6 | 8 | 32,200 | 70.3% |
| 2016 | 318.74 | 8.8 | 37,293 | 23.73% |
The prolonged Independence War, an Arab economic boycott, the cost for oil, and the absorption of immigrants put enormous stresses on the fledgling economy. The Israeli government responded by controlling large segments of the economy and imposing high personal tax rates. Foreign investments were hard to find. Yet, Israel was able to attract capital from diaspora Jews through Israel Bonds and annual giving, and, from German government reparations to the state and to Israeli citizens for injustices caused to Jews during WWII.
In the 1950s and 1960s, forced to export beyond the Middle East, Israel benefitted from a free trade agreement with the European Economic Community, and later in 1985 with the United States. Its economy weathered deep recessions from 1965-67, triple digit inflation and devaluation of its currency in the mid-1980s. Economic booms followed the June 1967 War and again after the massive immigration from the former Soviet Union in the end of the 1980s and 1990s. France’s refusal to provide Israel with a regular weapons supply, pushed Israel to expand a highly profitable weapons export business. Its economic growth masked pockets of poverty and a regular current account deficit. As it made agreements with some of its neighbors export markets blossomed, particularly in the sub-continent and in Asia. Constantly taking in highly educated immigrants, and with an innovative work force it attracted investment capital and developed a high tech industry of world class proportions.