Finding Success

Author:Phillip Swagel
Position:Professor of international economic policy, University of Maryland
Pages:60-61
 
FREE EXCERPT
60 FINANCE & DEVELOPMENT | December 2018
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Finding Success
ASSAF RAZIN’S Israel and the World Economy shows
that globalization can be a powerful force for eco-
nomic progress in the case of a countr y with the
institutions and policies to take advantage of the
possibilities of an open economy. As depicted in this
comprehensive and accessible book, Israel’s strong
growth since its stabilization from high ination
in 1985 owes much to an international economy
in which capital, labor, and ideas are mobile and
in which trade and investment ow readily across
far-ung international borders.
Razin expla ins that where other countries
have experienced problems with globalization,
Israel has found success. L arge capital inows are
understandably viewed as dangerous in emerg-
ing markets living with memories of recent cur-
rency crises: in Israel foreign capital provided
crucial funding for investment in the country’s
showcase technology sector. Israel is now solidly
established as a hig h-tech powerhouse—a plac e
where budding venture capitalist s from emerging
market countries ock to lear n how to develop an
innovation ecosystem. But the domestic market
alone is far too small a nd homegrown capital
formation insucient to foster that innovation.
Globalization has been essential.
Similarly, immigration is a hot-button issue in
the United States and in some countries in Europe
but a source of growth in Israel. is is because
a massive inux of skilled immigrants from the
former Soviet Union starting in 1989 led to a surge
in productivity, propelling Israel to medium- to
high-income status, capped by membership in
the Organisation for Economic Co -operation and
Development in 2010. And Razin shows that this
productivity boom translated into higher wages
even for domestic workers who might otherwise
have been harmed by the increas ed labor supply.
ere is a sense in which this is three books
in one. First, Razin explains the intuition and
policy implications of a more globalized world
across a range of topics, including migration,
inequality, capital ows, currenc y crises, interna-
tional trade, and more. e book then connec ts
each topic to developments in the Israeli econ-
omy, portraying both successes and challenges
in light of the underlying theory. Last, each
chapter includes self-contained tech nical exposi-
tions of key models with which to ana lyze these
economic phenomena, making this a text to be
considered for a rigorous course on international
economic policy.
It is not that Razin thinks Israel has done
everything right—far from it. He covers rising
inequality within Israeli society, the low par-
ticipation rates and levels of skills among the
fastest-growing segments of the population, the
problem of brain drain as hig hly educated Israelis
move abroad, and the costs assoc iated with Israel’s
security challenges, including a chapter on the
“Rising Cost of Occupation.”
Still, even with Razin’s frankness about the
potential pitfalls, hi s book is an ode to the poten-
tial benets of good economic policy, to economic
models through which to ex amine policy, and to
Israel’s astonishing economic success.
PHILLIP SWAGEL, professor of international economic
policy, University of Maryland
Assaf Razin
Israel and the
World Economy
MIT Press, Cambridge, MA
2018, 232 pp., $40
BOOK REVIEWS
Israel is now solidly established
as a high-tech powerhouse.

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