DP13361 High Tech and Venture Capital Inflows: The case of Israel

Author(s): Assaf Razin
Publication Date: December 2018
Date Revised: December 2018
Keyword(s): high tech sector, productivity, venture capital
JEL(s):
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13361

Large capital inflows are understandably viewed as dangerous in emerging markets living with memories of recent currency crises: in Israel foreign capital provided crucial funding for investment in the country's showcase technology sector. Israel is now solidly established as a high-tech powerhouse-a place where budding venture capitalists from emerging market countries flock to learn how to develop an innovation ecosystem. However, the domestic market alone is far too small and homegrown capital formation insufficient to foster that innovation. Globalization has been essential. The paper reviews the crucial role which globalization forces played Israel's transformation from low tech to high tech economy. Special emphasis is placed on foreign direct investment as a driver for the high-tech transformation.