Discuss about the Comparative Cultural and Global Business System.
The economy of Israel hasimproved after the war with Arab in 1948.The rate of GDP of the country has increased with the rise in time. The inflation rate of the country has also increased during this time. The major sector of Israel includes the Israeli diamond industry, which contribute a larger volume in the economy. As per the case study, it can be observed that in the year of 1948, the economy of Israel was underdeveloped. However, in the next two years, the economic condition of the country had improved within the next two years. In addition, the population of the country had doubled in terms of mass immigration.
Israel can efficiently control the economic challenges of the country with the rise in time. The per capita GDP has also improved from 1948 to 1960. This study will highlight the economic policy, which have followed by the country in order to improve their economy. Moreover, it can be seen that the position of the country was at 35 in terms of GDP per capita in the year of 1960. The position of the country was just behind New Zealand.
In order to understand the economic activity of Israel, it is required to identify the necessities of meaningful aggregation of alltypes of production. In this connection, the territory’s production is depending upon three major economic factors such as effective demand, production capabilitiesand the income statement of the people. Income rises from the payment distribution to the factor of production.
Gross domestic product of a country can be estimated as the summation of domestic as well as the demand for the global national foods. In this connection, it can be stated that domestic demand is the summation of the household along with the governmentand firm expenditure. Firm expenditures are such as public expenditure, consumption and investment. On the other hand, the foreigners purchase national goods of Israel in terms of export. It is noted that Israel is famous for the production of diamond. Therefore, Hill, Cronk & Wickramaseker (2013) pointed that Israel mainly aims to export diamonds to the other parts of the world. From this source, the revenue earning of the country has been increasing. On the contrary, Wild, Wild & Han (2014) criticised that the natural resources of Israel is comparatively poorthan the other countries and the country imports the natural resources from the outside. Hence, Israel tried to import petroleum and other raw materials from the other countries. In addition, it can be stated that the Israel has competitive advantage in the production of solar energy.
Consumer price index can estimate the changing of the price level of market of consumer products, which are purchased by the households. Consumer price is estimated for the measurement of country’s inflation rate. From the above figure, it can be observed that the consumer price index of Israel is not fluctuating with the changing of time. It is known that changing of consumer price index is associated with the changing of cost of living. Therefore, in a synopsis, it can be inferred that consumer price index of the country is consistent.
Nevertheless, Ferraro & Brod (2015) argued that at the end of the decade, the government of Israel was consuming during the three quarters of the economy. As a result, the economy has suffered from a huge amount of budget deficits. In order to mitigate this deficit, the bank of Israel has tried to finance by printing off new money. Therefore, supply of money within the country has risen. The rate of inflation has increased in that time. Hence, it can be mentioned that the wage rate of the Israeli workers have increased along with their cost of living. In this connection, it can be mentioned that as Israel was suffering from massive inflation, therefore, the Israeli policy makers aimed to determine metastasizing problem. Although, economy’s health deteriorated initially, therefore, the country faced a huge banking crisis. The investors started to evacuate their investment from the nation. In addition, it cannot be determined whether Israel would be capable to pay the foreign debts.
According to Perry-Kessaris (2016), it can be mentioned that the rise of inflation started with the independence of Israel that was attained in the year of 1948 after a severe war. In the next three years, the rate of population in Israel was getting doubled. These people came from post Holocaust Europe and also from Arab countries. Therefore, the government of Israel started to print money as per the immediate requirements. By the year of 1952, the rate of inflation rose from 14% to 66% compared to the previous year. This massive increment was initiated due to the implementation of New Economic policy. This policy implementation devaluated the foreign currency.
In the year of 1953, the bank of Israel started to control the flow of money in order to make the monetary policy of the economy stable as per the necessity of the economy. Bank of Israel addressed the rate of inflation as the primary factor. In order to regulate the power of banking system, the Bank of Israel offset the inflationary effects of the deficit spending of the government. This occurred during the time of wars as well as extensive waves of immigration.
The bank of Israel aimed to follow the command of monetary policy in the year of 1954. After that, the annual increment of consumer price index was a single digit percentage throughout theremaining 1950 and also through 1960. Moreover, in the year of 1962, the rate was increased by 10%. During these years, the economy of Israel enjoyed a massive growth and the average rate of increment of inflation was 10%. This rate was three or four times higher compared to the most of the Western economies. Most importantly, it can be added that the rate of unemployment was comparatively lower. As a result, the standard of living increased very quickly at that time. Individual wage rate of the employees was also increased. During the indexation period, the Bank of Israel focused to prevent the excessive inflation rate by reducing the real value of the savings. The depositors also ensured that each of the deposits would be registered the value at the rate of consumer price index. Furthermore, it can be mentioned that Israelis, who are supposed to deal with the higher inflation rate and the business of the country were unaffected. In this indexation period, the standard of living rose by the rate of 4% annually. This refers that government of Israel was able to control the country’s economy efficiently after the Arabian war. Therefore, it proves that sometimes government intervention is required to prevent the excessive inflation rate.
In the year of 1970, inflation in Israel started to increase in higher rate. In addition, in the year of 1971, the inflation rate was increased by the rate of 13% and this rate reached to 111% in the year of 1979. Therefore, it can be inferred that the situation of hyperinflation. Some of this higher inflation rate was imported from the global economy. Due to the higher oil price, the situation of hyperinflation arose within the country. As per the statement of Aronczy(2013), this situation can be explained by the situation of stagflation. More specifically, it can be mentioned that stagflation is the unprecedented combination of unemployment as well as economic stagnation. In Israel, full employment government policy put off this depressing situation(Hooper, 2016).
Moreover, it can be added that the rate of inflation was increased so massively since 1980s. In 1980, the rate of inflation was 133%, which was followed by 191% in 1983 as well as 445% in 1984. In this connection, it can be stated that the private consumption was increased by 28% during 1980s.
After the war with Arab, by the end of 1948, approximately 340000 immigrants had arrived. However, the government of the country had effectively provided the homeless houses and also new employment opportunities for the new population. With the help of new economic policy, which was implemented in the year of 1952, had the power off gradual relaxation of controlling the price as well as rationing. As a result, it can be stated that monetary expansion of Israel would be restrained along with restraining the budgetary constrain.
On the other hand, between 1950 and 1965, the rate of real gross national product of Israel was increased by 11 per cent and per capital G(Adekola & Sergi, 2016)NP was also higher and the rate was approximately 6 per cent. In this purpose, Müller & Timofeev (2016) mentioned that Israel got the opportunity to receive a huge capital inflows and United States transfers the unilateral loans. Therefore, Israel aimed to the availability of resources, which in turn boost up the country’s public and the private consumption and also the level of investment.
As a result, it can be mentioned that government budget of Israel and the stronger protectionist would be able to enable the import substitution of the economy. This would in turn develop new industries in Israel. The textile industry was expanded during this period. This also increases the rate of employment of Israel. As a result, the rate of unemployment was decreased. In the opinion of Adekola & Serg (2016), higher employment rate would be able to improve the gross domestic product of the economy. The purchasing power parity of the country would be improved. In addition, it can be mentioned that the standard of living of the country would be improved. The wage rate of each of the employee would be raised. This would in turn increase the overall output of the country. Therefore, it can be mentioned that there is a negative relationship between the rate of unemployment and the country’s GDP growth rate. This trade off can be explained with the help of Okun’s law. As per the Okun’s law, it can be mentioned that if the rate of unemployment of a country would decrease, then country’s GDP growth rate would be increased. Moreover, it can be stated that lower unemployment rate of an economy refers that wage rate of the individual will not be decreased. This also proves that although after the war there arise economic disbalance, however, government was able to control the situation. Therefore, with the passage of time, country’s economy was improved.
Conclusion
This report highlights how country’s GDP rate was increased from 1948 to 1960. After the Arab Israeli war, more than thousands of refugees from Europe and Arab were come to Israel. The economic situation of the country was suffering from severe economic crisis. However, the government oif Israel had managed the situation significantly. In the year of 1960, the rate of GDP was US$ 1366, whereas this rate is increased to US$ 37032. Therefore, it can be mentioned that there is a huge expansion in the economy of Israel. The ranking of Israel in terms of purchasing power parity is 35th. More specifically, it can be added that the rate of GDP growth is 3.8 per cent approximately. After analysing the above study, it can be observed that the government has implemented a new economic policy after the war with Arab. This had effectively increasedthe inflation rate. On the other hand, the rate of unemployment was also decreased in this time.
Adekola, A., & Sergi, B. S. (2016). Global business management: A cross-cultural perspective.
Aronczyk, M. (2013). Branding the nation: The global business of national identity. Oxford University Press.
Ferraro, G., & Brody, E. K. (2015). Cultural Dimension of Global Business.
Hill, Cronk, & Wickramasekera, R. (2013). Global business today. (Australia).: McGraw-Hill Education.
Hooper, M. J. (2016). The global business handbook: The eight dimensions of international management. CRC Press.
Müller, M., & Timofeev, D. (2016). Issues Faced By Small and Medium Enterprises In A Global Business Environment.
Perry-Kessaris, A. (2016). Global Business, Local Law: the Indian legal system as a communal resource in foreign investment relations.
Wild, J., Wild, K. L., & Han, J. C. (2014). International business. Pearson Education Limited.
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