The Effects of Capital Subsidization on Israeli Industry

An industrial policy of subsidizing physical capital investment has been utilized in many countries in order to encourage export growth and spread economic development to outlying areas. For Israel, we possess a unique time series-cross section micro data set that details investment and its associated subsidies by vintage at the level of the individual enterprise for 620 firms. These data provide the means by which an empirical analysis of the effects of the policy of subsidizing capital can be undertaken. We estimate that, for the years 1990-94, this policy has resulted in production inefficiencies ranging from 5% for firms that receive the average level of subsidies to 15% for heavily subsidized firms. We also document the fact that much of the subsidization appears not to have been necessary, in the sense that subsidized firms generally have earned higher rates of return on their total physical capital (included that portion which was subsidized) than firms that were not subsidized.

The Production and Cost Structure of Israeli Industry: Evidence From Individual Firm Data

The main purpose of this paper is to present estimates of production and cost functions obtained from using a time-series, cross-section data set pertaining to Israeli industry, We include a detailed list of heterogeneity controls in the specifications which substantially enhances the explanatory power of the models and contributes to our understanding of the nature of Israeli industry. Econometric problems which arise in attempting to estimate production and cost functions from panel data, such as sample selectivity, serial correlation due to unobserved firm effects, and endogeneity are addressed. A surprising finding is the relative inefficiency of large firms listed on the stock exchange. Histadrut and public firms appear to be poor performers in a number of dimensions. Large public firms are inefficient and pay excessively high wages. Small « 300 employees) public firms are not inefficient but pay excessive wages. Large Histadrut firms are inefficient while small Histadrut firms pay excessive wages. The wage structure in Israeli industry is seen to be systematically related to the heterogeneity controls used in this study. One productivity - related result is that firms experiencing higher than expected productivity also pay higher than expected wages, and about 70% of this productivity "bonus" appears as a wage rate increment.

High Tech Firms in Israeli Industry

The main purpose of this study is to characterize and analyze high technology industrial firms in Israel. We are able to advance beyond previous empirical studies of high technology because we have access to a unique individual firm data set, a sample of 670 establishments in Israel for the year 1982. Not only do we have basic production data at the individual firm level, but also each firm's capital stock revalued to 1982 dollars. A technology index is constructed from three technological indicators -- substantial R&D investment, a high proportion of the work force consisting of engineers and technicians, and a high proportion of the capital stock being of recent vintages. This technology index is used to classify firms. The largest concentration of High Tech firms are found in electronics and transport equipment industries, and the lowest in textiles and clothing. High Tech firms appear to be more productive, pay higher wages, and earn higher rates of return. Part of the higher wages to workers in High Tech firms accrue in the form of rents whereby workers in these firms exappropriate a portion of monopoly profits, a phenomenon which does not appear to be the case for Low Tech firms.