DIRECT EXTERNAL AID
A controversial subject that helps to explain the Israeli economy is the substantial amount of foreign aid received by the state. In fact, according to the OECD Observer, 2% of Israel’s GDP comes from foreign largesse, an abnormally high proportion for a more economically developed country. More than a fifth of the United States’ foreign aid budget goes to Israel, whose position as a strong ally in the Middle East is invaluable. The American taxpayers provide a total of $8.5m a day through Foreign Military Funding to the Israeli government. This aid will continue to at least 2018 under a package whose terms were agreed to under the Bush administration and will serve to boost the economy at first glance. Subsequently, this allows more of Israel’s self-generated Gross Domestic Product to be used in other areas, explaining to an extent the success of its economy compared to similar markets during the financial crisis of 2008-09 and since. On top of this, the Israeli government is not subject to the same measures imposed upon them as terms and conditions of the financial assistance, and has consequently allowed its domestic market to flourish by being afforded the right to spend up to 25% of its donation on purchasing goods from Israeli manufacturers. No other recipients of United States largesse are afforded this benefit. Furthermore, this has allowed Israel to push itself to the forefront of the arms trading industry, ranking in the top ten for the period between 2008-2012 for exports. Israel also benefits from “cash flow financing”, which allows for more purchasing power with regards to importing arms.
The situation regarding foreign aid, especially that of the United States, which is almost completely military aid, has facilitated the ongoing conflict in Gaza and the occupied territories. Accordingly, aid merely mitigates the economic damage of war, so it is arguable that foreign aid is not a driver of the Israeli economy, yet rather an issue that culminates in perpetuating the political status quo. The levels to which it directly affects the Israeli economy would be extremely complicated to calculate, but it can safely be assumed that without the great contribution towards the military, funding would be lacking (to some extent) towards developing the nation in other ways.
In summary, around 2% of Israel’s GDP comes from foreign aid and has helped to develop domestic industries such as arms manufacturing that contribute to Israel’s exports. However, the aid is mainly military based, and does not fully cover the cost of military expenditure or war that Israel faces.