The Grodecki Fundation, founded and operated by the Chamber, is named after the second President of the Chamber, Zeev Grodecki.

Funds are granted to researchers in fields relevant to trade-related issues between Israel and the U.S.

Abstracts are provided here. For the complete texts, contact the Chamber.

• The Link between Exchange Rate Uncertainty and Israeli Exports to the U.S., by Yaron Zelekha. For an abstract,click here.
• The Contribution of Foreign (US) High-Risk Capital to the Israeli Economy 1994-2008, by Tamir Agmon and Ido Kalir.  For a summary, click here.
• The Monetization and the Capitalization of Intellectual Assets: Evidence from the Innovative Technology Start-Up Sector in Israel, by Tamir Agmon and Ido Kallir. For an abstract,click here

by Tamir Agmon* and Ido Kallir**

 August 4, 2009

 Abstract

In the knowledge-base world of today ideas (intellectual assets) are an important driver for growth and development. It takes long time to make ideas into actual cash flows. Only if entrepreneurs can sell their ideas for future goods, services and processes in the capital market today they stand a chance to realize the potential of their innovative ideas tomorrow. The venture capital industry provides an excellent example for an industry that is based on the ability to bring together ideas and high risk capital in a process that generates value. Of particular interest is the case where the entrepreneurs reside in one country and the investors reside in another country. We show in this paper that in this case there are two benefits; the benefits to the entrepreneurs and the investors, and the benefits to the country where the investment takes place. The first benefit depends on the success of the young innovative technology firms (start-ups) set up by the entrepreneurs and the venture capital funds. The second benefit depends on the total flow of high-risk capital from the country of the investors to the country where the investment takes place. The two main components of the second, macro benefit are the employment of local high skilled and other workers and the tax that they pay. Israel is a good case in point for a country that benefited substantially from the import of high-risk capital primarily from the US via venture capital fund. We use Israeli data to estimate the total benefit to the Israeli economy from the investment by venture capital funds funded by foreign high-risk capital. The main result is that the benefits to the Israeli economy from the wage bill generated by the investment and the direct contribution of the workers exceeds by much the benefits to the economy from the successful start-ups, (exits).   For the complete text, contact the Chambe

 

by Dr. Yaron Zelekha2

 Abstract

Israel is a small and open economy with a high proportion of foreign trade activity relative to output in general and high technology export in particular. Exports to the US,Israel’s largest trading partner, are prominent in this context. Therefore, it is important to understand the variables that determine Israeli exports, as well as the sensitivity of US imports to fluctuations in the exchange rate of the US dollar against the currency of the exporting country.

This study presents a brief description of a theoretical model for testing the effect of export price uncertainty on exports. Using this model, the effect of uncertainty on Israeli exports of goods and services to the US will be tested empirically. The estimation uses a quarterly sample for the period 1995–2007.

The results of the estimation and the model’s relatively high explanatory power support the research hypothesis that export price uncertainty has a negative and dominant effect, which is statistically significant, on Israel’s exports to the US. It was also found, as expected, that the main variables affecting exports in the long run are supply factors (including traditional variables such as relative price, the workforce and local productivity). Therefore, as mentioned, in one part of the literature (including the theoretical model developed in this study) uncertainty is described as a variable with a long-run effect.

For the full text, contact the Chamber.

 

A summary of the main results of a research done by Tamir Agmon and Ido Kalir

   In the period 1994-2008 more than 24 billion USD were invested in more than 6000 companies in the high tech sector in Israel. 70% of this amount was funded by venture capital funds that raised more than 95% of their capital outside Israel, primarily in theUS. About one third of the investment were done in an early stage, but as an average investment in an early stage over this period was about 0.5 million USD and an average investment in a late stage was 25 million USD most of the companies that received investment were in an early stage. About two thirds of the companies that received investments in the period 1994-2008 still operate in 2009. However, only a very small number, about 100 brought their investors very high return (an exit). Most of the surviving small companies pay for their expenses but not return on the capital. We maintain in the study that the major contribution of this industry to the Israeli economy is in the fact that foreign capital pays the lions’ share of the cost of employment for a large number of engineers and other workers. The contribution can be measured in building up high skilled labor force. However, in the study we measure the direct effect through taxes paid on the wage bill of the industry. To illustrate, in the period 1994-2008 the workers in the high tech industry paid as a direct taxes about 2.5 billion USD and additional 0.9 billion USD as indirect taxes. At that time the computed tax on exits, that probably was never paid, was about 0.4 billion USD. The research has a number of implications for government policy:

• From macro-economic point of view the important variable is total foreign investment in the high-tech industry. Realizing expected return is a necessary condition for investors and entrepreneurs, but in itself is not important for the economy as a whole.
• The above implication crucially depending on two facts; (1) the money comes from abroad, and (2) if this money would not be invested in the high-tech industry in Israel it would not be invested in Israel at all.
• That means that it makes sense for the government to subsidize the upside, the success, for the investors by abolishing on direct and indirect taxes on success (exits).
• The government should encourage those areas in high-tech where there is a lot of allocated money to be invested by foreign investors like pension funds regardless of the expected return and success of the investment, (biotech is a good case in point. Nanotechnology may be another).
• IIn time of a down cycle the government should keep investment opportunities by putting more money into pre-seed and seed stages