the herzliya indices...dr. zalman shiffer –economic advisor team leader prof. rafi melnick - idc...

Prof. Rafi Melnick - IDC HerzliyaJanuary 2008 1

Herzliya Conference

2008

“The Herzliya Indices”National Security Balance

The Civilian Quantitative

Dimension


Team Members

Ms. Leah Achdut – Van Leer Jerusalem Institute; The

Ruppin Academic Center

Dr. Michel Strawczynski – Bank of Israel

Mr. Tommy Steiner – IDC Herzliya

Dr. Zalman Shiffer – Economic Advisor

Team Leader

Prof. Rafi Melnick - IDC Herzliya

With thanks to Michal Ophir and Refaela Cohen (National Insurance

Institute of Israel), Polina Dovman (Bank of Israel), and Gilad Skutelsky

(IDC Herzliya) for their assistance with research.

Herzliya Indices Team


45

47

49

51

53

55

57

59

61

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Development of the

Economic Dimension in Israel

1990-2007


92

93

94

95

96

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Development of the Social

Dimension in Israel

1990-2006


50

55

60

65

70

75

80

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Development of the

Governmental/Political Dimension

1996-2006in Israel


Dimensions of National Security

National

Security

Civilian

Dimension

Military

Dimension

SocialEconomicGovernmental/Political


Multiple Indicators Approach

National SecurityUnobservable Latent Variable

Indicator

N ObservableIndicator II

Observable

Indicator IObservable

...

• N indicators are measurable; they affect and are affected by national security, which is an

unobservable latent variable.

• The presence of multiple indicators allows (under defined assumptions) one to quantify national

security.

• A rise in each indicator means improvement in national security, in the corresponding

dimension.


Components of the

Economic Indicator(relative weight in parenthesis)

1. GDP Per Capita, PPP (16%)

2. GDP, PPP (15%)

3. Unemployment (15%)

4. High-Technology Exports – % of Manufactured Exports (11%)

5. General Government Gross Financial Liabilities (11%)

6. Inflation Rate (11%)

7. Current Account Balance (11%)

8. Foreign Currency Reserves (10%)


1. Poverty Incidence (14%)

2. Gini Inequality Coefficient (12%)

3. Human Development Index – Education (11%) *

4. Chronic Unemployment (10%)

5. Human Development Index – Life Expectancy (10%) *

6. Rate of Participation in Labor Force – Men (10%)

7. Rate of Participation in Labor Force – Women (10%)

8. Human Development Index – GDP (9%) *

9. Population Aged 65+ (7%)

10. Population Aged 15- (7%)

Components of the

Social Indicator(relative weight in parenthesis)

* Last updated in 2005


1. Political Stability and the Absence of Violence (11%)

2. Rule of Law (11%)

3. Democracy (10%) *

4. Political Rights (9%)

5. Civil Liberties (9%)

6. Control of Corruption (8%)

7. Quality of Regulation (8%)

8. Efficiency of Government (8%)

9. Voice and Accountability (8%)

10. Alliances (6%)

11. Membership in International Organizations (6%)

12. Hosted Embassies (6%) * Last updated in 2003

Components of the

Governmental/Political Indicator(relative weight in parenthesis)


The Model

• Construction of a panel data set of 31 countries

• The model includes:

– Israel

– 26 OECD countries

– 4 regional countries: Egypt, Iran, Jordan, and

Syria

• Data ranges from 1990 through 2006

• Israel’s economic data is through 2007


Economic Data Sources

Primary Sources

• World Bank

• IMF – World Economic Outlook

• OECD Economic Outlook

• Israel’s Central Bureau of Statistics

Secondary Sources

• IFS – International Financial Statistics (IMF)

• Economist Intelligence Unit-Iran

• Bank of Israel and various central banks

• Other sources


Social Data Sources

Primary Sources

• OECD

• Luxembourg Income Study

• Israel’s Central Bureau of Statistics

• UN Human Development Reports

Secondary Sources

• OECD, Labor Market Statistics Data LFS by sex

• CIA

• National Tobacco Information Online System

• Statistical, Economic and Social Research and Training Center

for Islamic Countries

• World Bank

• Eurostat Data, Indicators of the 20 NewCronos


Primary Sources• World Bank

• Freedom House

• Polity IV Project

• A.T. Kearny - Foreign Policy Magazine

• Europe Yearbook

• Treaties and Alliances of the World

Governmental/Political

Data Sources


Methodology

• A preliminary base is calibrated for each dimension

• Each variable is measured in percentage change or

percentage difference in the case that its basic

measurement is in percents

• An annual weighted average is calculated using the

weights obtained from a panel of experts

• The indices are formed, over time, by cumulating

annual weighted averages


Herzliya Indices 2008Results


0

10

20

30

40

50

60

70

80

90

100

Jo

rdan

Syri

an

Ara

b R

ep

ub

lic

Iran

, Is

lam

ic R

ep

.

Po

lan

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Tu

rkey

Czech

Rep

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Eg

yp

t, A

rab

Rep

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Hu

ng

ary

Gre

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Po

rtu

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Isra

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Irela

nd

Ko

rea

New

Zeala

nd

Sp

ain

Au

str

ali

a

Sw

ed

en

Den

mark

Fin

lan

d

Belg

ium

Au

str

ia

Neth

erl

an

ds

No

rway

Can

ad

a

Italy

Un

ited

Kin

gd

om

Fra

nce

Sw

itzerl

an

d

Germ

an

y

Jap

an

Un

ited

Sta

tes

Economic Base | 1990


0

20

40

60

80

100

120

Jo

rdan

Syri

an

Ara

b R

ep

ub

lic

Iran

, Is

lam

ic R

ep

.

Tu

rkey

Po

lan

d

Czech

Rep

ub

lic

Eg

yp

t, A

rab

Rep

.

Hu

ng

ary

Po

rtu

gal

Gre

ece

Isra

el

New

Zeala

nd

Sp

ain

Ko

rea

Irela

nd

Sw

ed

en

Fin

lan

d

Au

str

ali

a

Au

str

ia

Belg

ium

Den

mark

Italy

Neth

erl

an

ds

No

rway

Can

ad

a

Sw

itzerl

an

d

Fra

nce

Un

ited

Kin

gd

om

Germ

an

y

Jap

an

Un

ited

Sta

tes

Economic Base | 2006


Development of the Economic

DimensionIsrael and the Developed Countries

45

50

55

60

65

70

75

80

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Israel G7 Euroland OECD


25

30

35

40

45

50

55

60

65

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Israel Iran Jordan Egypt Syria

Development of the Economic

DimensionIsrael and Regional Countries


-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

Isra

el

Jap

an

Fra

nce

Syri

a

Po

rtu

gal

Germ

an

y

US

A

No

rway

Neth

erl

an

ds

Sw

itzerl

an

d

Au

str

ia

Sw

ed

en

Can

ad

a

ltaly UK

Fin

lan

d

Belg

ium

lrela

nd

Den

mark

Eg

yp

t

Po

lan

d

Tu

rkey

Gre

ece

Ko

rea,

Rep

Au

str

ali

a

Hu

ng

ary

Iran

New

Zeala

nd

Czech

Rep

Sp

ain

Jo

rdan

Economic Change (percent) | 2000-2003


0

1

2

3

4

5

6

7

Po

rtu

gal

Jo

rdan

Jap

an

ltaly

Sw

itzerl

an

d

Germ

an

y

Fra

nce

Neth

erl

an

ds

Au

str

ia

UK

Au

str

ali

a

US

A

Belg

ium

New

Zeala

nd

Sp

ain

lrela

nd

Gre

ece

Ko

rea,

Rep

Hu

ng

ary

Sw

ed

en

Fin

lan

d

Can

ad

a

Czech

Rep

No

rway

Eg

yp

t

Syri

a

Den

mark

Po

lan

d

Isra

el

Tu

rkey

Iran

Economic Change (percent) | 2003-2006


0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Po

rtu

gal

Jo

rdan

UK

Jap

an

ltaly

Germ

an

y

Au

str

ali

a

New

Zeala

nd

US

A

Sw

itzerl

an

d

Fra

nce

Au

str

ia

Tu

rkey

lrela

nd

Neth

erl

an

ds

Belg

ium

Can

ad

a

Sp

ain

Ko

rea,

Rep

Czech

Rep

Fin

lan

d

Den

mark

Sw

ed

en

Hu

ng

ary

Gre

ece

Syri

a

No

rway

Po

lan

d

Iran

Isra

el

Eg

yp

t

Economic Change (percent) | Marginal 2006


Economic Index 2006Ireland 61.9

Korea 61.4

Spain 61.2

New Zealand 59.8

Israel 59.2

Greece 53.6

Portugal 53.4

Hungary 52.1

Egypt, Arab Rep. 49.4

Czech Republic 43.9

Poland 43.5

Turkey 42.9

Iran, Islamic Rep. 40.6

Syrian Republic 31.7

Jordan 30.4

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

United States 110.0

Japan 77.6

Germany 71.1

United Kingdom 69.3

France 67.6

Switzerland 67.6

Canada 66.5

Norway 66.3

Netherlands 66.2

Italy 66.1

Denmark 64.5

Belgium 63.9

Austria 63.7

Australia 62.9

Finland 62.6

Sweden 62.4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16


0

20

40

60

80

100

120

Syri

a

Iran

Eg

yp

t

Jo

rdan

Tu

rkey

Gre

ece

lrela

nd

Ko

rea,

Rep

Sp

ain

Isra

el

Po

rtu

gal

ltaly

Po

lan

d

New

Zeala

nd

Hu

ng

ary

Belg

ium

Fra

nce

UK

Jap

an

Germ

an

y

Czech

Rep

US

A

Neth

erl

an

ds

Au

str

ali

a

Au

str

ia

Sw

itzerl

an

d

Can

ad

a

No

rway

Sw

ed

en

Fin

lan

d

Den

mark

Social Base | 1990


0

20

40

60

80

100

120

Iran

Syri

a

Eg

yp

t

Jo

rdan

Tu

rkey

Gre

ece

Po

lan

d

Ko

rea,

Rep

Isra

el

Sp

ain

ltaly

Po

rtu

gal

lrela

nd

Belg

ium

Hu

ng

ary

Czech

Rep

Jap

an

UK

New

Zeala

nd

Germ

an

y

US

A

Fra

nce

Au

str

ia

Au

str

ali

a

Can

ad

a

Sw

itzerl

an

d

Neth

erl

an

ds

No

rway

Sw

ed

en

Fin

lan

d

Den

mark

Social Base | 2006


94

95

96

97

98

99

100

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006


Development of the Social DimensionIsrael and the Developed Countries


60

65

70

75

80

85

90

95

100

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Israel Egypt Iran Jordan Syria

Development of the Social DimensionIsrael and Regional Countries


-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

Jap

an

US

A

Isra

el

Po

lan

d

Tu

rkey

Germ

an

y

Eg

yp

t

Den

mark

Belg

ium

Fin

lan

d

Sw

ed

en

No

rway

Au

str

ia

Neth

erl

an

ds

Au

str

ali

a

UK

Czech

Rep

Sp

ain

Iran

Fra

nce

Can

ad

a

Ko

rea,

Rep

lrela

nd

Po

rtu

gal

Hu

ng

ary

Gre

ece

Sw

itzerl

an

d

ltaly

New

Zeala

nd

Jo

rdan

Syri

a

Social Change | 2000-2003


-0.5

-0.3

-0.1

0.1

0.3

0.5

0.7

0.9

1.1

1.3

No

rway

Po

rtu

gal

Isra

el

Sw

itzerl

an

d

US

A

UK

Fra

nce

Can

ad

a

Neth

erl

an

ds

Belg

ium

Den

mark

Czech

Rep

Hu

ng

ary

Fin

lan

d

ltaly

Jap

an

Syri

a

Sw

ed

en

Tu

rkey

Po

lan

d

Au

str

ia

Gre

ece

Au

str

ali

a

Ko

rea,

Rep

Germ

an

y

Jo

rdan

lrela

nd

New

Zeala

nd

Iran

Sp

ain

Eg

yp

t

Social Change | 2003-2006


-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

No

rway

Belg

ium

Tu

rkey

Czech

Rep

Fra

nce

Ko

rea,

Rep

Can

ad

a

Gre

ece

US

A

Po

lan

d

Sw

ed

en

Po

rtu

gal

Au

str

ali

a

UK

ltaly

Jo

rdan

Hu

ng

ary

Neth

erl

an

ds

Isra

el

Syri

a

Jap

an

Fin

lan

d

Sw

itzerl

an

d

Eg

yp

t

Den

mark

Iran

Au

str

ia

New

Zeala

nd

Germ

an

y

lrela

nd

Sp

ain

Social Change | Marginal 2006


Social Index 2006

Denmark 106.4

Finland 103.9

Sweden 103.6

Norway 103.6

Netherlands 103.1

Switzerland 102.8

Canada 102.7

Australia 101.8

Austria 101.8

France 100.5

USA 99.9

Germany 99.9

New Zealand 99.8

UK 99.8

Japan 99.4

Czech Rep. 99.4

Hungary 99.4

Belgium 98.3

lreland 97.1

Portugal 96.2

ltaly 95.5

Spain 95.5

Israel 95.2

Korea, Rep. 95.1

Poland 95.0

Greece 92.1

Turkey 84.9

Jordan 81.5

Egypt 78.5

Syria 74.5

Iran 72.6

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16


0

20

40

60

80

100

120

Iran

, Is

lam

ic R

ep

.

Syri

an

Ara

b R

ep

ub

lic

Eg

yp

t, A

rab

Rep

.

Tu

rkey

Jo

rdan

Ko

rea,

Rep

ub

lic o

f

Isra

el

Po

lan

d

Gre

ece

Hu

ng

ary

Czech

Rep

ub

lic

Italy

Jap

an

Sp

ain

Po

rtu

gal

Irela

nd

Au

str

ali

a

Fra

nce

New

Zeala

nd

Fin

lan

d

Au

str

ia

Belg

ium

Germ

an

y

Sw

itzerl

an

d

Sw

ed

en

No

rway

Den

mark

Un

ited

Kin

gd

om

Neth

erl

an

ds

Can

ad

a

Un

ited

Sta

tes

Governmental/Political Base | 1996


0

20

40

60

80

100

120

Syri

an

Ara

b R

ep

ub

lic

Iran

, Is

lam

ic R

ep

.

Eg

yp

t, A

rab

Rep

.

Jo

rdan

Tu

rkey

Isra

el

Ko

rea,

Rep

ub

lic o

f

Po

lan

d

Gre

ece

Czech

Rep

ub

lic

Hu

ng

ary

Italy

Sp

ain

Po

rtu

gal

Jap

an

Irela

nd

Fra

nce

Au

str

ali

a

New

Zeala

nd

Au

str

ia

Belg

ium

Sw

ed

en

Sw

itzerl

an

d

Fin

lan

d

Germ

an

y

Un

ited

Kin

gd

om

No

rway

Neth

erl

an

ds

Den

mark

Un

ited

Sta

tes

Can

ad

a

Governmental/Political Base | 2006


65

70

75

80

85

90

95

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006


Development of the

Governmental/Political DimensionIsrael and the Developed Countries


25

35

45

55

65

75

85

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Israel Egypt Iran Jordan Syria

Development of the

Governmental/Political DimensionIsrael and Regional Countries


-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

ltaly

Po

rtu

gal

Sp

ain

Syri

a

Iran

Gre

ece

Sw

ed

en

Po

lan

d

Hu

ng

ary

Neth

erl

an

ds

Belg

ium

US

A

Fin

lan

d

Can

ad

a

Fra

nce

Den

mark

Germ

an

y

Au

str

ia

New

Zeala

nd

No

rway

UK

Czech

Rep

Sw

itzerl

an

d

lrela

nd

Eg

yp

t

Au

str

ali

a

Ko

rea,

Rep

Jo

rdan

Isra

el

Jap

an

Tu

rkey

Political Change | 2003-2006


-1.5

-1

-0.5

0

0.5

1

Sp

ain

Po

rtu

gal

Ko

rea,

Rep

ltaly

Po

lan

d

Iran

Hu

ng

ary

Fra

nce

lrela

nd

Jo

rdan

Gre

ece

Czech

Rep

Syri

a

Neth

erl

an

ds

Eg

yp

t

Germ

an

y

Fin

lan

d

Tu

rkey

US

A

Isra

el

Sw

ed

en

No

rway

Au

str

ali

a

Au

str

ia

New

Zeala

nd

Belg

ium

Can

ad

a

Sw

itzerl

an

d

Den

mark

Jap

an

UK

Political Change | Marginal 2006


Governmental/Political Index 2006

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

Canada 100.5

United States 98.0

Denmark 96.1

Netherlands 94.9

Norway 94.7

United Kingdom 94.6

Germany 94.5

Finland 94.5

Switzerland 94.1

Sweden 93.9

Belgium 93.8

Austria 92.9

New Zealand 91.4

Australia 91.3

France 90.4

Ireland 88.6

Japan 87.0

Portugal 86.8

Spain 85.5

Italy 81.8

Hungary 81.1

Czech Republic 81.1

Greece 78.6

Poland 77.6

Korea, Republic of 73.9

Israel 71.6

Turkey 59.1

Jordan 55.6

Egypt, Arab Rep. 51.4

Iran, Islamic Rep. 30.6

Syrian Republic 29.1


Summary: Crisis and Recovery

-3

-2

-10123

2000-2003 2003-2006

The Herzliya Indices:

Crisis and Recovery

Economic Social Political

1. The Herzliya indices provide aquantification of the national crises thatIsraeli society experienced in the years2000-2003 and the recovery from themduring 2003-2006.

2. The recovery of the Economic Index in2003-2006, which continued in 2007, isstronger than its decline during 2000-2003.

3. No significant recovery is registered in theSocial Index. The Social Index does showthat the deterioration in this dimension,which started before 2000-2003 anddeepened during the crises, has stopped.

4. The Governmental/Political Index shows arecovery in 2003-2006 that is milder thanthe deep decline it suffered in 2000-2003.


Summary: Latest Developments

0

1

2

3

2006 2007


Crisis and Recovery


1. The Herzliya Indices of National Security areall positive in 2006, despite the occurrence ofthe Second Lebanon War. The strongestimprovement is in the economic dimension,which continues to evolve in 2007. Theimprovements in the social andgovernmental/political dimensions are onlymarginal, although they show a change fromthe previous negative trends.

2. The economic dimension shows very strongimprovement, which generally also wasobserved in the other countries in oursample; therefore we do not see animprovement in the relative position of Israelvis-à-vis the other countries in our sample.


Summary: Latest Developments

0

1

2

3

2006 2007


Crisis and Recovery


3. The improvement in the social dimension isvery slight, illustrating that the economicimprovement has not, so far, spilled over tothe social aspects of Israeli society.

4. In the governmental/political dimension, wealso record a very slight improvement andthe level of this index remains in the lowerpart of the distribution of our sample.

the herzliya indices...dr. zalman shiffer –economic advisor team leader prof. rafi melnick - idc...

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