Foundations for Growth and Competitiveness 2026

Israel

Economic growth has been strong in Israel over the past decade. Robust population growth has been a key contributing factor to this increase. Another key factor has been an improvement in labour productivity, driven by a buoyant high-tech sector. The share of the working-age population in employment has also risen thanks to a fall in the structural unemployment rate and greater participation of women in the labour force.

Continued robust economic performance requires reinforcing the existing pillars of growth. Investing in infrastructure is important to underpin future productivity growth. It is essential for long-term growth to bring into employment many more members of population groups that have high demographic growth and currently low labour-market attachment. Ongoing trade liberalisation needs to continue while there is scope to simplify business regulation.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Digital economy: Invest in digital infrastructure and skills

Israel has a world-class high-tech sector with strong digital companies, including in artificial intelligence (AI). However, there is still considerable scope to deepen competition in broadband delivery and to expand the uptake of digital technologies beyond the high‑tech sector.

Recommendations

✓ Continue efforts to foster competition in the provision of fibre-optic broadband services.

✓ Ensure a central coverage of digital skills in the National Qualifications Framework currently in preparation.

Transport infrastructure: Deploy user and congestion charging and further modernise rail transport

Israel’s transportation infrastructure is lagging. Road networks are underdeveloped, and congestion, especially in the Tel Aviv metropolitan area, is among the worst in the OECD. Public transport, especially by rail, is comparatively undersized, and much of the rail network remains to be electrified.

Recommendations

✓ Implement congestion charges and user fees to encourage an efficient utilisation of the road network.

✓ Streamline administrative and legal procedures to make it easier and faster to build transport infrastructure and expand the supply of mass transit.

✓ Establish metropolitan transport authorities to enhance the governance and use of public transport resources.

✓ Swiftly complete plans to electrify railways.

Labour mobility and participation: Better integrate ultra-orthodox men and Arab women in the labour market

Substantial employment gaps remain. Low employment among Haredi (ultra-orthodox) men and Arab women drags down overall labour market performance. As demographic trends imply a strongly rising share of Haredim in the population, improving their participation in the labour force is paramount for long-term growth. Specific subsidies and exemptions for Haredi men discourage and delay their labour force participation. Lack of available and affordable childcare hinders the labour force participation of Arab-Israeli women. Rapid increases in house prices have made it difficult for entrants into the labour market to find homes in the most economically dynamic areas.

Recommendations

✓ Remove disincentives for yeshiva students to acquire labour market skills and seek employment, including by lowering transfers and conditioning childcare support on employment of both parents.

✓ Increase the provision of childcare in Arab municipalities.

✓ Build more social housing, especially in economically dynamic areas, while targeting eligibility on low-income workers.

Openness to trade and FDI: Expand trade agreements, facilitate agricultural imports and remove obstacles to foreign investment

Relative to GDP, trade is lower than most other advanced countries of comparable size. Some of this underperformance results from challenging relations with some regional neighbours. However, policy also plays a role: despite strong progress in recent years, trade barriers remain, with relatively high tariffs on farm produce and technical barriers to trade (TBTs) by comparison with OECD averages. Restrictions on the employment of foreigners as key personnel can work as an obstacle to foreign investment.

Recommendations

✓ Negotiate new trade agreements while deepening existing ones, reduce cumbersome TBTs and ensure remaining TBTs are aligned with international standards. In addition, simplify and extend import licensing.

✓ Facilitate imports of farm produce including by cutting tariffs on vegetables.

✓ Relax restrictions on employment of foreigners as key personnel.

Business environment: Reduce regulatory burdens and simplify bankruptcy procedures

Administrative and regulatory demands are among the most stringent in the OECD, which obstructs firm entry and growth. Price and quantity controls apply to a wide range of staple foods, distorting consumer choices and resulting in shortages. Would-be entrants into professional services face higher barriers than what is typical in OECD countries. Personal costs to failed entrepreneurs are higher than the OECD average because of less efficient liquidation processes.

Recommendations

✓ Minimise the time, cost, and number of steps needed to launch a new company while implementing an online one-stop platform.

✓ Facilitate business licensing including by encouraging the use of “silence is consent” mechanisms.

✓ Reduce entry barriers for firms providing professional services, such as the requirement that legal firms be owned by attorneys.

✓ Streamline bankruptcy prevention and liquidation regimes by simplifying procedures applicable to micro and small enterprises while completing on-going legislative efforts to reward early-stage debt negotiations between lenders and at-risk borrowers.

Recent progress on structural reforms

The terrorist attacks of 7 October 2023 and war, together with the resulting large government deficits, have complicated structural reform initiatives, which have slowed yet continued. Action to facilitate trade has remained determined, with two free trade agreements entering into force in 2024 (with Guatemala and Viet Nam). The “No Stopping at the Port” reform entered into force in July 2024, allowing goods to enter the country using market monitoring based on risk assessment, like in other developed markets, without systematically stopping merchandise for inspection or certification. The “What’s good for Europe is good for Israel” regulatory reform came into force in 2025, aligning Israeli regulatory requirements with the European Union’s for 90% of consumer products, foods and cosmetics.