Israel has an exemplary history of success in both economic growth and economic development. In this paper I am focusing on a very specific sector of this economy and have tried to identify the reason(s) to this great success. The question I am trying to address is "what were the sources of growth in the agricultural sector of Israel?"

According to the Library of Congress Country Studies, "Efficiency use of the factors of production and the change in their relative composition explain a significant portion of the increases productivity in the agricultural sector." And this efficiency has made "the Desert Bloom" (Agriculture in Israel 3). Since the independence (1948), the total cultivated land has grown from 165,000 hectare to some 435,000 hectare today. In 1948, only 30,000 hectare was irrigated while today this number has been increased to 186,400 hectare (4- 5). These are some of the factors explaining the 3.1 percent annual average growth in the agricultural sector of Israel. Furthermore, like many agricultural sector in other successful countries, Israel’s "agriculture has benefited from high capital inputs toward careful development, and making full use of available technology over a long period" (Israel, Agriculture).

Agricultural organization is an important part of the agricultural sector of this country. There are two kinds of agricultural organization in Israel. The first one is called Kibbutzim that "often served strategic or defensive purposes in addition to purely agricultural function" (ibid). The closest comparison for this method of agricultural organization is the collectivized farming in the former Soviet Union. In this method, farms served governmental purposes, and were not necessarily driven by market.

The second kind of farming is called moshav which "provides its members with credit and other services, such as marketing and purchasing of seeds, fertilizer, pesticides and the like"(ibid). In relative terms speaking, moshav is a more efficient method of farming.

Because of Israel’s varied climatic, diverse topographical and soil condition, growing a wide range of agricultural produce has been made possible. Field crops such as, wheat, sorghum, corn and fruit (citrus, apples, pears and plump) and vegetables (zucchini, tomatoes, cucumbers and peppers). Israel is also capable of growing tropical fruit such as, banana, mango and guava. In Addition to their products, Israel is a major producer of flowers. As a matter of fact, flower export consists 31 percent of the $590 million total agricultural export (Agriculture in Israel).

The Sources of Growth Model will be my conceptual framework. In this model I will use a regression model to analyze the explanatory factors

The production function:

PRODUCTION= f (FERTILIZER, LAND, IRRIGATION, AGPOP, TRACTOR)

PRODUCTION= Agricultural Production

FERTILIZER= Fertilizer Consumption

LAND= Agricultural Land

IRRIGATION= Irrigated Land

AGPOP= Agricultural Population

TRACTOR= Number of Tractors in use

Using these variables, I have set the regression equation. The resulting regression output provides coefficients for each variable. In the next step, a growth model is prepared. In order to do so, the weight for each variable is calculated to:

The growth equation:

For any given "g" an appropriate variable growth mean is used (see appendix B &C).

The data obtained from Food and Agricultural Organization (F.A.O), are entered into an Excel spreadsheet (Appendix A). Following the method that "Agricultural Development" by Yujiro Hayami and Vernon W. Ruttan suggests, the explanatory variables for production are identified. Then, data for each variable are obtained for 20 years. I estimated the percentage change (growth), and used them in my regression model. My calculations have driven negative coefficients for several values that have very positive correlation with production most common problem in regression analysis, multicolinarity. For example, the regression output resulted a negative coefficient for LAND variable, which is not possible. (as the use of agricultural land increased, production decreased. To avoid multicolinarity, I extended the time period of my data from 20 to 33 years. This is one of the most common solutions to this problem.

After extending the time period, the equation was set up using LAND, IRRIGATION and FERTILIZER, resulting in unreal numbers again. When all three factors were used in the equation, a negative coefficient for FERTILIZER was derived, which is not logical. As the fertilizer consumption goes up, the production should go up as well.

After using several combinations of LAND, IRRIGATION and FERTILIZER I decided to use a new variable, LANDIRRIG. This variable is the product of LAND growth and IRRIGATION growth, and represents the amount of irrigated agricultural land in Israel.

Finally the regression output showed me positive coefficients for all the independent variables (shown in Appendix C).

I add up all the coefficients (except the constant term, C):

0.1689+0.2609+0.2609+0.2815+0.1206= 1.0

*Note: I used LANDIRRIG coefficient twice because it represents the coefficient of two separate variables

____________________

Total 1.0

According to Cobb-Douglas production function, "1" represents a constant return to scale in production

The next step is estimating the agricultural growth due to increase in production factors (see Appendix B & C).

g* = 0.17(-0.0035)+0.26(0.00387)+0.26(0.0115)+0.28(0.0392)+0.12(0.035)

g* =0.0186

Change in total Factor production (a) was calculated by the following formula:

Thus, the difference between actual growth rate (g) and growth rate due to production factors growth (g*) represents technical and organizational changes (shown by letter a).

"a" is a change in total factor production (TFP). The change in TFP (a) is an indicator for technological and organizational changes. If the value is positive, technological and organizational changes had positive effect on the production. A negative value represents a negative effect for technological and organizational changes on the production, and zero indicates that institutional and technological changes had no effect on the production.

In order to find change in total factor productivity (TFP):

a= 0.031- 0.0186= 0.0124

40 percent change in production was due to institutional and organizational changes. 60 percent change was to the factors of productions (LAND, IRRIGATION, TRACTOR, AGPOP).

The weight of an independent variable demonstrates its effectiveness on the dependent variable. The heaviest weight belongs to capital (TRACTOR). The weight of 0.28 truly demonstrates the importance of capital for this significant production growth (note that a 3.1% growth in an agricultural sector is a very significant growth). Capital accumulation resulted in a negative labor growth (AGPOP). It means that capital has replaced labor in this period (transforming from labor intensive to capital intensive). Growth in agricultural land plays an important role as well. FERTILIZER & IRRIGATION growth was substitutive for LAND growth.

After taking all these factors into consideration and analyzing their effectiveness, we can see that these factors don’t fully explain the production growth. There is still a difference between the actual growth (g) and estimated growth (g*). This difference was showed with the sign "a," or change in total factor productivity (TFP). This indicator tells us that how much of the growth is due to institutional and technological changes (micro level). Shifting from kibbutzim to moshav (inefficient to efficient) especially in 1980s is an example of organizational change (Israel, Agriculture). Change in technology could be illustrated with the example of changes in labor training (farmer know-how), or improvement of seeds (green revolution). "The agricultural sector today is based almost entirely on R&D, with government agencies, academic institutions and cooperative bodies working together to seek solutions to problems and meet new challenges" (Agriculture in Israel 18). Furthermore, Israel has put a lot of effort in a newborn field of agrotechnology. As it was mentioned 40% of the agricultural production of the agricultural sector is due to organizational and technological change.

As the conclusion to this project, I state that the purpose of studying and analyzing the economies of successful countries is quiet beneficial to less developed countries. LCD’s can learn how to develop their economies using the great experience of developed countries (to some extend). I chose Israel because its growth in the agricultural sector in a relatively short period of time, considering the harsh climate and scarcity of water, is a great demonstration. In other words, Israel can be a model for many LCD’s, especially the ones with similar environmental conditions.

Israel, Agriculture. http://lcweb2.loc.gov/frd/cs/cshome.html, Library of Congress; 1997.

Agriculture in Israel. Jerusalem, Israel: Ahva Press, 1995.

Hayami & Ruttan. Agricultural Development. Baltimore, ML: Johns Hopkins U., 1985.