1. Engines for Growth Prof. Zvi Eckstein, Deputy Governor, Bank of Israel 2008 Herzliya Conference

2. The Trend of GDP over time SOURCE: Eckstein & Tsiddon (2004), Heston, Summers & Aten (2006), CBS. Forecast for 2007 and 2008 The main reasons for lower output : Employment: 10% lower. Productivity per worker: 25% lower.

3. GDP Growth and the Unemployment Rate (percent) *forecast Source: CBS and BOI

4. Gross Public Debt (percent of GDP) *forecast Source: CBS and BOI

5. Public Expenditure and Public Deficit (Percent of GDP) Source: CBS and BOI *forecast

6. Inflation Expectations and Inflation Target Source: CBS and BOI

7. Microeconomic Aspects of Growth x Employment rate Productivity = GDP per Capita Focusing on increasing employment and reducing poverty –From welfare to work –Negative income tax –Non-Israeli workers –Enforcement of labor laws Increasing labor productivity –Focusing on traditional industries

8. GDP per Worker, Capital per Worker, Total Factor Productivity and R&D Expenditure (Israel vs. USA, 1995-2002 averages) Israel to USA ratio (%) R&DK/LTFPY/LGDP per capita (USA, $ PPP) 96230328560,892 Mining and digging, wood and its products, non-metal minerals 38140724987,851 Food, beverages, tobacco 2480445262,999 Textile, clothing, leather products, paper goods, publishing and printing 44151267962,317 Rubber products and plastic 5876425771,054 Basic metal and products 4197445671,636 Total traditional and semi traditional industries 941008054177,457 Chemicals and oil refining 5071966384,050 Machines, equipment and transport 4389525394,231 Traditional industry and mid-tec 113102668988,319 Electric and optical equipment 9894596393,472 Total industry

9. Thank you!