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Conditional Convergence and Future TFP Growth in Israel

Author

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  • Shay Tsur

    (Bank of Israel)

  • Eyal Argov

    (Bank of Israel)

Abstract

This study is part of a broad project of constructing a long-run growth model for Israel, and to evaluate how different exogenous developments, or policy steps, are expected to affect the long run growth rate. The current study describes the Total Factor Productivity (TFP) block of the project. We first estimate productivity determinants in regressions that are based on a cross section of countries with fundamental variables such as geography and culture, together with policy affected variables such as physical and human infrastructures, and institutions. We test the robustness of the policy estimates by running panel regressions with policy variables for which historical data are available. Using the estimates from the cross section regressions we calculate the gap of each country's productivity from its own predicted value, and forecast Israel's TFP growth by using this calculated gap as the potential to converge and therefore to grow faster than the average world growth rate. In this respect, this work is novel in integrating the deep roots of growth literature into a conditional convergence framework. We find that Israel's actual productivity level is slightly below the predicted one, suggesting that it has only a small potential to grow faster than the average global growth. The baseline TFP growth forecast for the years 2015--60 is 0.47, very similar to the historical growth rate of Israel's TFP over the last 15 years.​

Suggested Citation

  • Shay Tsur & Eyal Argov, 2019. "Conditional Convergence and Future TFP Growth in Israel," Bank of Israel Working Papers 2019.05, Bank of Israel.
  • Handle: RePEc:boi:wpaper:2019.05
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    Cited by:

    1. Eyal Argov & Shay Tsur, 2019. "A Long-Run Growth Model for Israel," Bank of Israel Working Papers 2019.04, Bank of Israel.
    2. Thomas Ziesemer, 2022. "Global Dynamics of Gini Coefficients of Education for 146 Countries: Update to 1950-2015 and a Compact Guide to the Literature," Bulletin of Applied Economics, Risk Market Journals, vol. 9(1), pages 85-95.

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