Applicable Theories:

Rostov Growth Model

Neoclassical Counter Revolution

In the last half century, Israel went from being a relatively poor country to one of
the 25 richest in the world, as measured by per capita income. Israel’s economy
continues to register remarkable macroeconomic and fiscal performance. Growth is
strong and unemployment low and falling. With low interest rates and price stability,
financial policy is prudent, and public debt is comparatively low and declining. The
external position is solid, thanks to a dynamic high-tech sector. The average standard of
living is improving, mainly due to higher employment rates. Continued accommodative
macro policies and planned investments in the offshore gas fields in the coming years
will spur further growth. Against this backdrop, Israelis remain on average more
satisfied with their lives than residents of most other OECD countries. This can be
linked to the Rostov Growth Model where there is a rapid growth and change in the
economy starting from their traditional ways up to the age of high mass consumption.

However, from about 1973 to 1985, Israel had very high rates of inflation at one
point reaching over 400%. That was the result of excessively loose monetary policy.
Over time, printing money at such a clip took in successively less government revenue,
as Israelis adjusted to the inflation and worked around it by holding less cash and
denominating their contracts in foreign currencies. The inflation stopped giving
macroeconomic benefits, even for government revenue, which causes the downfall and
making the government at fault. But Israel then moved toward a regime of lower inflation
and fiscal strength, to the benefit of the country’s longer-term growth. What about the
financial crisis of 2008-2009? Well, Israel had decent bank regulation which causes
another problem but again avoided the worst lending and real estate excesses of
Ireland, Iceland, and the U.S. Israel did find that its exports were damaged by the global
recession, but the nation responded with a modest fiscal expansion and a very strong
countercyclical monetary program, mostly with success. Economist Stanley Fischer was
the head of the Israeli central bank from 2005 to 2013, and he is considered one of the
foremost practitioners of mainstream macroeconomics

CHINA (Developing Country)

Applicable Theories:

Harrod Domar

Patterns of Development

China’s global economic influence and power is unmistakable. China has

achieved an average growth rate of over 9% since 1978, the year that effectively was
the start of the market-based reforms in the Chinese economy. Sustained growth also in
China has lifted over 700 million people. Their per capita income is rising though still low
by advanced-nation levels. Moreover, capital investment and exports have been the
foundations for Chinese growth and development. This can be linked to Harrod Domar’s
model where a country invests large capital amount in order to achieve fast
development.

The share of GDP from Chinese industry has been closed to 50% for more than
30 years, but since 1980 the share contributed by service industries grown from 30% to
43%. This is below the norm in advanced countries where services account for more
than 70% of GDP. Agriculture’s share of Chinese GDP has fallen also from 30% of GDP
in 1980 to less than 10% in 2009. There has also been a mass movement of millions of
people away from rural areas into urban centers of population, but agriculture still
accounts for around 40% of total employment. And the latest Economic Plan is centered
on developing the services sector, increasing urbanization and improving incomes-
there are big opportunities here for UK service multinationals. These proves that the
theory of patterns of development is parallel to the situation of China wherein there is a
shift of focus in terms of sector. By this it can cause development which is due to the
shifting of emphasis in a country.