In 1882, when Zionist activity began, there were about 25,000 Jews in Palestine. By 1922, the Yishuv, or Jewish community in Palestine, had a population of 84,000. The national income was $8 million, or almost $1,500 per capita; by 1945, the Jewish population of Palestine was 550,000, and the national income had reached $147 million, or approximately $2,678 per capita, in constant prices and exchange rates. This was achieved under Ottoman and then British rule. In 1948, Israel declared its independence and was invaded by all of its neighbors. The war of independence left it without resources to absorb the huge immigration – its raison d’être – that arrived immediately following the war. Between 1950 and 2009, Israel’s GDP rose 34-fold, and its GDP per capita increased almost sixfold in real terms. By 2009, the population reached 7.4 million, the national income was almost $203 billion, and income per capita came to $27,275, using the 2008 prices and exchange rates.
What explains the extraordinary eighteenfold growth of the Yishuv’s economy? How can the growth of the Israeli economy be explained? The simple answer is population growth fed by immigration; imports of capital that permitted fast rates of investment; and successful organization and high levels of motivation. At a deeper level lie the issues of structural change, technological development, and economic policy making against a complex background of sociological and political change. Israel has capitalized on its disadvantages: It has always been at war and has lacked an economic hinterland in the Middle East. It therefore developed technologies to provide its armed forces with “quality” to match Arab “quantity,” which were deliberately released for use in the civilian sector often great success. It also orientated its exports to markets in developed countries. This was both because nearby markets were closed and because the technological nature of its production made it suitable for more sophisticated markets. The benefits of this integration into the global economy have not been universally felt in Israel, and socioeconomic gaps have widened, fed in part by ethnic and religious factors. It has also had to overcome, like many other countries, many policy errors and other costs.