Entrepreneurial Engines of Economic Growth around the World
Edited by Jerome S. Engel
Chapter 7: Israel: the technology industry as an economic growth engine creating a nationwide Cluster of Innovation
Since the 1990s Israel has been the most vibrant high-technology cluster outside the US. Several complementary factors contributed to this: a highly adaptive, innovative and entrepreneurial culture; Israel’s significant defense R & D spending and training of personnel; the absorption of the highly skilled immigration wave from the former USSR since 1989; prestigious higher education institutions; proactive government policy for the promotion of civilian R & D spending since the 1980s; and the presence of a locally managed venture capital industry that was boosted by the Israeli government in 1992 and that has grown quickly by adopting the US VC model and business culture. Much of the credit for this can be attributed to successive Israeli governments for realizing that a civilian research and development industry could become an engine of economic growth, and for then implementing policies to create it, stimulate it and ensure its expansion. However, the government’s actions vis-à-vis the high-tech sector – and by extension the wider Israeli economy – stand at a critical juncture. As strong as the industry is, concerns exist about its sustainability in the face of national budget reductions over recent years and a weakening of the structural components underpinning its success.
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