the norwegian economy norwegian life and society (norint0500) thomas von brasch: [email protected]

The Norwegian EconomyNORWEGIAN LIFE AND SOCIETY (NORINT0500)

Thomas von Brasch: [email protected]


Plan for the lecture

• Wealth and productivity in Norway– The Norwegian Productivity Puzzle

• Other statistical facts about Norway• Current macroeconomic situation

– Four important stabilising mechanisms


How wealthy is Norway?


National income per capita,Current prices, Norway=1


Why are we so wealthy?


Sources of wealth

19701974

19781982

19861990

19941998

20022006

20102014

0

0.5

1

1.5

2

2.5

3

3.5

Disposable real income per capita

Productivity - oil

Productivity - non oil

Terms of trade

Balance of income and current transfers

Hours worked/Population


Reasons to worry?

1970-1994 1995-2004 2005-2014-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Productivity - oilProductivity - non oilTerms of tradeBalance of income and current transfersHours worked/Population


Contributions to labour productivity growth

1970-1994 1995-2004 2005-20140

0.5

1

1.5

2

2.5

3

TFPCapital intensity


Main drivers of TFP

• Human capital– Level of education– ICT knowledge

• Research and development


Level of education

Johansson, Å. et al. (2013), “Long-Term Growth Scenarios”, OECD Economics Department Working Papers, No. 1000, OECD Publishing. http://dx.doi.org/10.1787/5k4ddxpr2fmr-en


PISA 2012


ICT knowledge


ICT knowledge

OECD (2014), Measuring the Digital Economy: A New Perspective, OECD Publishing. http://dx.doi.org/10.1787/9789264221796-en


R&D and productivity growth (1986 - 2008)

0.0 0.5 1.0 1.5 2.0 2.5-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

TFP annual % change

R&D/GDP

MFP growth=-0.18+0.497(R&D/GDP)t-statistic: 2.08**


The Norwegian Puzzle

• “There is a puzzle about Norway. How did it succeed in reaching one of the highest living standards among OECD countries from a relatively poor ranking in 1970?”(p. 18)

• “Productivity is high, real growth rates have been respectable, overall TFP growth is better than in many countries with higher R&D spending, and industry has by and large managed to survive a changing world and a strong exchange rate” (p. 129)

Source: OECD (2007), Economic Surveys: Norway, January (2).


Labour productivity

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4

NorwayNorway, Mainland

BelgiumNetherlands

DenmarkFrance

GermanySwedenAustria

SpainFinland

ItalyUnited Kingdom

IcelandGreece

PortugalEstoniaPoland

GDP per hour, relative to USA in 2013. Converted to USD using economy wide purchasing power parities. Sources: OECD og SSB.


Productivity and Purchasing Power Parities• Productivity refers to the volume of

outputs relative to the volume of inputs

• But the value of production is measured in different currencies

• How should the value of production be compared across countries?


Productivity and Purchasing Power Parities• Purchasing Power Parities compares

price levels between countries:

• They are essential when comparing productivity between countries


Impact from industry composition on productivity• Assume that two countries produce

two goods and that the prices of the two goods are the same in both countries at both time periods

• The Purchasing Power Parity between the two countries is then

• Relative productivity is then measured by

=


Impact from industry composition on productivity• Assume further that country is a

large oil exporter and that the oil price increases. Value added in constant prices will then increase most in country .

• Even if nothing has happened with productivity, the increase in oil prices will result in an increased of measured productivity:


Productivity (in time and space)

16

20

24

28

32

36

40

44

16

20

24

28

32

36

40

44

1980 1985 1990 1995 2000 2005 2010

Norway Denmark Sweden USAGermany France Finland

Sources: OECD og EUKLEMS. Gross product per hour. USD, basic prices. All industries except oil and electronics.


International comparisons

4/5


R&D: controlling for industry composition

PO

L

SV

K

ES

P

ITA

HU

N

PR

T

NO

R

CZ

E

IRL

GB

R

NL

D

AU

S

SV

N

BE

L

ES

T

FR

A

AU

T

DE

U

US

A

DN

K

JPN

SW

E

KO

R

FIN

01

23

45

%

U

na

dju

ste

d b

usi

ne

ss R

&D

inte

nsi

ty

Ad

just

ed

bu

sin

ess

R&

D in

ten

sity

Business R&D intensity, OECD average

Andrews, Criscuolo, 2013, Knowledge-based capital, innovation and resource Allocation, OECD Economic Policy Papers (4)


The Norwegian Puzzle

• Not that low R&D investments• Not as productive as previously

believed• Not as puzzling after all


Break


Can one compare productivity between

countries with different industry structures?


Argentina vs. Norway

?

?


Sectoral composition and productivity• Example:

– Country produces 1 banana per hour– Country produces 2 apples per hour

• Which country is most productive?


Sectoral composition and productivity• Split production in three categories

A. Products made by both country and B. Products made by country onlyC. Products made by country only

• Productivity comparisons across countries relates to A

• But, how large is the common set of production?


Equal sectoral composition?

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

NLD

LVA

POL

GBR

FRA

EST

FIN

SWE

ITA

AUT

ESP

BEL

DEU

IRL

IS

DNK

Common production relative to total production, Manufacturing, 2013.

Source: Eurostat, PRODCOM database 2013. Average of the shares for Norway and the comparison country. ISO country codes.


Equal sectoral composition? Norway vs. Denmark

NOR DNK Product0,072 0 Unwrought aluminium alloys 0,058 0 Offshore vessels0,057 0 Fitting out services of ships and floating platforms and structures0,037 0 Design and assembly of automated production plants0,037 0 Repairing of ships, boats and floating structures 0,035 0 Frozen whole salt water fish0,025 0,012 Other structures principally of sheet: other0,021 0,003 Fresh or chilled fish fillets and other fish meat without bones0,019 0,013 Fresh or chilled cuts, of beef and veal0,019 0,001 Frozen fish fillets0,380 0,029

0 0,138 Generating sets, wind-powered0 0,029 Medicaments containing corticosteroid hormones0 0,028 Medicaments containing insulin but not antibiotics,

0,007 0,028 Fresh or chilled pig meat 0,001 0,024 Weirs, sluices, lock-gates, and other maritime structures0,004 0,022 Other food preparations n.e.c.

0 0,021 Enzymes; prepared enzymes 0,005 0,018 Articles of iron or steel, n.e.s.0,002 0,017 Other articles of plastics or other materials0,005 0,017 Beer made from malt 0,024 0,342

Shares of production, 2013

Source: Eurostat, PRODCOM database 2013. ISO country codes.


How can we increase productivity?


1. Produce more electronics


Produce more electronics?

Kilde: OECD STAN ISIC REV. 4, Industry d26 for USA.

Development relative to overall GDP. USA.


2. Fire people with a disability


Productivity – not at any price• Policies directed at increasing

productivity should be based on what is an overall gain for society, not only by the gain in productivity.

• Public policies to raise productivity in private businesses should be based on the existence of market failure, e.g., – Monopoly– Polution


Future productivity growth


Employment


Implications for productivity: envelope calculation• Public employment share is expected

to rise from 30% to between 40 and 50% in 2060

• Change in overall productivity growth= (change in employment share) x (difference in productivity growth)= (50%-30%) x (0,5%-2%) = -0,3 (percentage points)

• Is this a problem?


Other statistical facts about Norway


Gender gap index

• Economic Participation and opportunity– E.g., Female labour force participation,

income etc. relative to male.

• Educational attainment– E.g., female literacy rate, enrolment rate

etc.

• Health and survival– Female healthy life expectancy over

male value

• Political empowerment– Females at ministerial level over male

value

World Economic Forum: http://www3.weforum.org/docs/GGGR14/GGGR_CompleteReport_2014.pdf


Gender gap index


Women at work


Women at work

https://www.regjeringen.no/no/dokumenter/meld-st-46-20122013/id733259/?ch=2


Wise women


Inequality: Gini coefficient = A/(A+B)


Inequality (Gini coefficient)

Source: https://en.wikipedia.org/wiki/Economic_inequality

https://en.wikipedia.org/wiki/Economic_inequality

https://en.wikipedia.org/wiki/Economic_inequality


Employment and labour force participation rates 2012

https://www.regjeringen.no/no/dokumenter/meld-st-46-20122013/id733259/?ch=2


Current macroeconomic situation


Output gap

Output

Time

Potential output

Actual output


Output gap in Norway


Stabiliser 1: Government policy – «budgetary rule»


Stabiliser 2: The Central Bank of Norway


Why do we have so low interest rates?

𝑟∗

Savings

Investments

Real interest rate,



Savings

Investment slump

Real interest rate,

𝑟∗



Savings glut

Investment slump

Real interest rate,

𝑟∗


Stabiliser 3: Wage negotiations


Stabiliser 4: Exchange rate

http://www.economist.com/news/finance-and-economics/21674775-currency-pegs-are-still-fashion-some-are-creaking-pegs-under-pressure?frsc=dg%7Cd


Stabiliser 4: Exchange rate


Contributions to future GDP growth


Summary

• Norway – Wealthy– «Equal» in many respects– Highly educated– No productivity puzzle– Different sectoral composition sector

compared with many other European countries

• 4 important short run stabilising mechanisms

the norwegian economy norwegian life and society (norint0500) thomas von brasch: [email protected]

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