Norway dutch disease. How did Norway avoid "the Dutch disease"? The Arab case 2022-10-26
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The term "Dutch disease" refers to the negative economic effects that can occur when a country experiences a sudden influx of foreign currency, often as a result of the discovery and exploitation of natural resources such as oil or minerals. One of the key symptoms of Dutch disease is a decline in the competitiveness of the country's manufacturing and export sectors, as the appreciation of the currency makes exports more expensive and imports cheaper. This can lead to a loss of jobs in these sectors and a shift towards reliance on the natural resource sector for economic growth.
Norway is a prime example of a country that has experienced Dutch disease. The country has a long history of oil and gas production, and the discovery of offshore oil fields in the 1960s and 1970s led to a significant increase in foreign currency inflows. As a result, the Norwegian kroner appreciated in value, making Norwegian exports less competitive on the global market. This led to a decline in the manufacturing sector, as well as a shift towards the service sector, which was less affected by the appreciation of the currency.
Despite the negative effects of Dutch disease, Norway has managed to mitigate some of its negative consequences through a combination of fiscal and monetary policies. One of the key strategies has been the establishment of the Government Pension Fund of Norway, also known as the "oil fund." This fund was created to manage the country's oil and gas revenues and invest them in a diversified portfolio of assets. By investing the oil revenues in a fund rather than spending them, the Norwegian government has been able to smooth out the economic cycle and avoid the boom and bust cycles that often accompany the exploitation of natural resources.
In addition to the oil fund, Norway has also implemented a number of fiscal policies to address the negative effects of Dutch disease. These include measures to support the manufacturing sector, such as tax incentives and subsidies, as well as investments in infrastructure and education. These policies have helped to maintain the competitiveness of the manufacturing sector and support economic diversification.
Overall, Norway's experience with Dutch disease illustrates the challenges that can arise when a country experiences a sudden influx of foreign currency. While the discovery of natural resources can bring significant economic benefits, it is important for countries to carefully manage these resources in order to avoid negative economic consequences. Through a combination of fiscal and monetary policies, Norway has been able to mitigate some of the negative effects of Dutch disease and maintain a diversified and resilient economy.
How did Norway avoid "the Dutch disease"? The Arab case
Explaining this story or relative performance we find it less likely that the sudden growth was caused by cultural changes, new political institutions, or other unobservable causes and more likely that the sudden growth may be attributed to management of the resource gift. Also, by saving the boom revenues, a country is saving some of the revenues for future generations. Kasim saved Norway from oil in the sense that he, and his team, sought to help Norway avoid the so-called 'Dutch disease', where oil revenues lead to inflation this was called the 'Dutch disease' after the discovery of natural gas in the Netherlands and the negative effects this had on the economy, effects such as inflation and corruption. The Economic Journal, 92 366 , 285—299. Kasim, a graduate of Imperial College London who hails from Basra, chose to emigrate from Iraq and settle with his Norwegian wife in her home country in 1968.
The country was facing a massive restructuring process, as their earlier deindustrialisation of the economy was larger than what is consistent with a long-term industry structure. And it continues to grow fast. . In the meantime, oil was discovered off the Norwegian coast. We still have to work hard, and the wages are very comparable to the costs as it is in other countries.
They demonstrate that resource abundance may lead to a product profile that may delay or diminish the growth of manufacturing, which is thought to be of essence in development. Following the oil price shocks of the 1970s, numerous oil-exporting countries had similar "diseases," adding to the increasing literature on the issue. However, the government will frequently reduce other taxes to depend more heavily on natural resource tax receipts. Renta bestemmer det meste. One will have to look at the big picture, and see how this will benefit us in the long-run, and not be impatient and wanting all the money to be spent right now.
This article seeks to extract the important lessons learned in one country, Norway, which escaped both the curse and the disease. Economic Interdependence and Flexible Exchange Rates. In addition, we locate the time tF, after which all Norwegian gross domestic products per capita were larger than the Danish and Swedish equivalents. Somewhat similarly, Norway limited what it could spend. This is an important factor for the neutralization of Dutch Disease as reduces the labor shift between the two sectors. Brent Blend oil price. Economic indicators show that Norway at the time was no remarkable place.
Moreover, resource abundance may involve a displacement of a growth-essential manufacturing sector, leading to Dutch Disease. Påvirkes kursen på norske kroner av verdensprisen på olje? The graph below shows the wage evolution in Norway since 2002 in which we can see that gap between oil sector and the others never exceeded 2 per cent in this period. Section 6 concludes and put forward policy implications. Bjrnland, Clair Brown, Knut Einar Rosendahl, Thor-Olav Thoresen, and Wei-Kang Wong, ideas from Ian McLean, and grants from the Norwegian Research Council, project no. But not for Norway. Errors remain my sole responsibility. The disease may become an acute problem since the manufacturing sector often is associated with productivity growth and technical advance.
The British Journal of Politics and International Relations. Farouk al-Kasim thus came to be world renowned. The Iraqi-Norwegian oil expert and his two colleagues have since disavowed the draft law, after it was turned into a bargaining chip between Iraqi politicians, who do not seem to appreciate the importance of this vital sector of the Iraqi economy, and the loss suffered by the country as a result of the delay in passing this legislation. First, it discourages rent seeking and internal conflicts of redistribution. From these facts, economists were alerted to the paradox that occurs when a society has a huge natural wealth that causes the inactivity of production and the weakness of industrialization and the lack of competitive incentive among the members of the society and hence exposes them to the Dutch disease!! A literature search was performed from a review, using secondary data analysis. Bardin 2004 points out, however, that the results obtained may have a different outcome to the goal initially presented, serving as a basis for further analysis arranged around new theoretical dimensions, or practiced thanks to different techniques. Another strategy is for the government to boost subsidies or tariffs in the underperforming industry.
Spending policies toward tradable sector including imports and general policies toward improving productivity of private firms help to reduce the negative impacts. Arguably, further consequences of low profitability and less farmland area are an increased pressure to become more efficient, which may result in increased use of antibiotics and increased depletion of soil. Cointegration and error correction: representation, estimation and testing. This article offers a definitive "yes" on the former, and believes that this helps identify oil as the cause for the acceleration leading to catch-up. As it blossoms, other industries wilt. Since that time, the Norwegian oil output has been in the range of 2 to 3 million barrels per day.
How Norway Avoided Dutch Disease By Investing and Spending Wisely
I compute differences between the GDP per capita in Norway and its neighbors, and examine the properties of the development of differences in the period 1960- 1998 using structural break techniques for identification and Monte Carlo bootstrap simulations for inferences. Bjlrn land, Clair Brown, Knut Einar Rosendahl, Thor-Olav Thoresen, and Wei-Kang Wong, ideas from Ian McLean, and grants from the Norwegian Research Council, project no. At this point we can call a windfall a curse. This article uses neighbor countries Denmark and Sweden to highlight Norway's relative development. Since oil production started in 1971 its overall growth has been remarkable side-by-side with phenomenal oil exports. It increases demand for labor in the non-tradable sector services , at the expense of the lagging sector.
Studies on secondary sources involve bibliographic books and research already done on the subject under study. But there is no "no" in what we observe. This contributes to a lack of competitiveness in other areas of the economy. These disappointing results may arise from negative effects of riches on policies and human endeavor. Norway found a resource treasure in the 1969 while Denmark and Sweden did not. Dutch Disease is a word used in When raw commodities become scarce, the economy may find itself in a worse position than before.
Dutch disease in the Norwegian agricultural sector
Another benefit of letting the revenues into the country slowly is that it can give a country a stable revenue stream, giving more certainty to revenues from year to year. The article employs structural break techniques to demonstrate that Norway started a sudden acceleration in 1974, three years after having started oil extraction, and never slowed down. Non-resource-based industries, on the other hand, suffer as a result of the greater income created by resource-based companies. The apparent causal association between growth in one sector's economic development and a deterioration in other sectors is known as the Dutch Disease. Instead of inflation and corruption, the Nordic nation managed to become a model to be followed in exploiting oil wealth for development, and launching local engineering and construction services to support the oil sector with local expertise. By the turn of the century, the positions were reversed.
