Vision to Reality: The Reut Blog

Merav Arlozorov recently presented new research by the Bank of Israel which examines the influence of the law for encouraging capital investment. According to the research, the grants that Israel gave to several factories in the periphery encouraged more capital investment but didn’t succeed in significantly enlarging the scope of employment. Arlozorov reports that a governmental investment of 800m NIS resulted in creating 7,500 jobs. That means that the government invested more than 100,000 NIS in each job.

Is this the most effective way to invest the money?

The Growth Report states that effective governmental investment should promote the building of capabilities and enhancing of skills rather than supporting specific factories. This conclusion is based on two reasons. Firstly, there is no point in supporting factories that are not globally competitive without governmental subsidies; secondly, fostering workers’ capabilities and skills upgrades human capital in society in general. These workers can utilize their new skills in any workplace (not only in their specific factory or industry) and will thus increase the economy’s competitiveness and flexibility.