The economy of Israel is a developed free-market economy. Israel ranks 35th on the World Bank’s ease of doing business index. It has one of the largest numbers of startup companies in the world, and the third-largest number of NASDAQ-listed companies after the U.S. and China.
American companies such as Intel, Microsoft, and Apple built their first overseas research and development facilities in Israel. Other high-tech multi-national corporations, such as IBM, Google, Hewlett-Packard, Cisco Systems, Facebook, and Motorola have opened R&D centers in the country.
The country’s major economic sectors are technology and industrial manufacturing. The Israeli diamond industry is one of the world’s centers for diamond cutting and polishing, amounting to 23.2% of all exports.
Israel’s quality university education and the establishment of a highly motivated and educated populace is largely responsible for ushering in the country’s high technology boom and rapid economic development by regional standards.
The country has developed a strong educational infrastructure, and a high-quality incubation system for new cutting-edge ideas to create value driven goods and services. These developments have allowed the country to create a high concentration of high-tech companies across the country’s regions. These companies are financially backed by a strong venture capital industry.
Its central high technology hub, the “Silicon Wadi”, is considered second in importance only to its Californian counterpart. Numerous Israeli companies have been acquired by global corporations for their reliable and quality corporate personnel.
Israel also benefits from international trade connections. Israel has signed free trade agreements with the European Union, the United States, the European Free Trade Association, Turkey, Mexico, Canada, Ukraine, Jordan, and Egypt. On 18 December 2007, Israel became the first non-Latin American country to sign a free trade agreement with the Mercosur trade bloc. It has also been part of the OECD since 2010.
Israel is also a major tourist destination, especially for those of Jewish descent, with 4.55 million foreign tourists visiting it in 2019 (about 1 tourist per 2 Israelis).
SMEs are of great importance to the Israeli economy. Small and medium enterprises (SMEs) constitute the overwhelming majority of companies in Israel. SMEs account for 99.8% of all employer businesses in Israel, 68.7% of the business sector workforce and 62.3% of business economy value added.
Both medium-sized (50-249 employees) and small businesses (10-49) contribute larger shares of business numbers, employment and value added to the business economy than the OECD average. On the other hand, micro businesses numbers and employment are slightly lower than the OECD average, although micro firms in Israel still contribute more than the OECD average to business sector value added.