The Norwegian Economy NORWEGIAN LIFE AND SOCIETY NORINT

The Norwegian Economy NORWEGIAN LIFE AND SOCIETY (NORINT 0500) Thomas von Brasch: vonbrasch@gmail. com

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 Thomas von Brasch: vonbrasch@gmail. com

How wealthy is Norway? Thomas von Brasch: vonbrasch@gmail. com

National income per capita, Current prices, Norway=1 Thomas von Brasch: vonbrasch@gmail. com

Why are we so wealthy? Thomas von Brasch: vonbrasch@gmail. com

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Sources of wealth 3, 5 Disposable real income per capita Productivity - oil Productivity - non oil 3 2, 5 2 1, 5 Balance of income and current transfers Hours worked/Population 1 0, 5 0 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Terms of trade Thomas von Brasch: vonbrasch@gmail. com

Reasons to worry? 5, 0 4, 0 Productivity - oil Productivity - non oil 3, 0 2, 0 Terms of trade 1, 0 Balance of income and current transfers Hours worked/Population 0, 0 -1, 0 -2, 0 1970 -1994 1995 -2004 2005 -2014 Thomas von Brasch: vonbrasch@gmail. com

Contributions to labour productivity growth 3 2, 5 2 TFP 1, 5 Capital intensity 1 0, 5 0 1970 -1994 1995 -2004 2005 -2014 Thomas von Brasch: vonbrasch@gmail. com

Main drivers of TFP • Human capital – Level of education – ICT knowledge • Research and development Thomas von Brasch: vonbrasch@gmail. com

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. 1787/5 k 4 ddxpr 2 fmr-en Thomas von Brasch: vonbrasch@gmail. com

PISA 2012 Thomas von Brasch: vonbrasch@gmail. com

ICT knowledge Thomas von Brasch: vonbrasch@gmail. com

ICT knowledge OECD (2014), Measuring the Digital Economy: A New Perspective, OECD Publishing. http: //dx. doi. org/10. 1787/9789264221796 -en Thomas von Brasch: vonbrasch@gmail. com

ICT knowledge OECD (2014), Measuring the Digital Economy: A New Perspective, OECD Publishing. http: //dx. doi. org/10. 1787/9789264221796 -en Thomas von Brasch: vonbrasch@gmail. com

R&D and productivity growth (1986 - 2008) TFP annual % change 2, 0 FIN 1, 5 NOR SWE DEU GBR 1, 0 AUT ISL 0, 5 USA CHE AUS NZL PRT 0, 0 FRA NLD JPN BEL CAN -0, 5 ITA -1, 0 DNK ESP MFP growth=-0. 18+0. 497(R&D/GDP) t-statistic: 2. 08** -1, 5 0, 0 0, 5 1, 0 1, 5 2, 0 2, 5 R&D/GDP Thomas von Brasch: vonbrasch@gmail. com

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). Thomas von Brasch: vonbrasch@gmail. com

Labour productivity GDP per hour, relative to USA in 2013. Converted to USD using economy wide purchasing power parities. Sources: OECD og SSB. Thomas von Brasch: vonbrasch@gmail. com

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? Thomas von Brasch: vonbrasch@gmail. com

Productivity and Purchasing Power Parities • Thomas von Brasch: vonbrasch@gmail. com

Impact from industry composition on productivity • Thomas von Brasch: vonbrasch@gmail. com

Impact from industry composition on productivity • Thomas von Brasch: vonbrasch@gmail. com

Productivity (in time and space) Sources: OECD og EUKLEMS. Gross product per hour. USD, basic prices. All industries except oil and electronics. Thomas von Brasch: vonbrasch@gmail. com

International comparisons 4/5 Thomas von Brasch: vonbrasch@gmail. com

Unadjusted business R&D intensity Adjusted business R&D intensity 4 4 5 % 5 R&D: controlling for industry composition POL SVK ESP ITA HUN PRT NOR CZE IRL GBR NLD AUS SVN BEL EST FRA AUT DEU USA DNK JPN SWE KOR FIN 0 1 1 2 2 3 3 Business R&D intensity, OECD average Andrews, Criscuolo, 2013, Knowledge-based capital, innovation and resource Allocation, OECD Economic Policy Papers (4) Thomas von Brasch: vonbrasch@gmail. com

The Norwegian Puzzle • Not that low R&D investments • Not as productive as previously believed • Not as puzzling after all Thomas von Brasch: vonbrasch@gmail. com

Break Thomas von Brasch: vonbrasch@gmail. com

Can one compare productivity between countries with different industry structures? Thomas von Brasch: vonbrasch@gmail. com

Argentina vs. Norway Thomas von Brasch: vonbrasch@gmail. com

Sectoral composition and productivity • Thomas von Brasch: vonbrasch@gmail. com

Sectoral composition and productivity • Thomas von Brasch: vonbrasch@gmail. com

Equal sectoral composition? 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. Thomas von Brasch: vonbrasch@gmail. com

Equal sectoral composition? Norway vs. Denmark Shares of production, 2013 NOR 0, 072 0, 058 0, 057 0, 037 0, 035 0, 021 0, 019 0, 380 DNK Product 0 Unwrought aluminium alloys 0 Offshore vessels 0 Fitting out services of ships and floating platforms and structures 0 Design and assembly of automated production plants 0 Repairing of ships, boats and floating structures 0 Frozen whole salt water fish 0, 012 Other structures principally of sheet: other 0, 003 Fresh or chilled fish fillets and other fish meat without bones 0, 013 Fresh or chilled cuts, of beef and veal 0, 001 Frozen fish fillets 0, 029 0 0, 007 0, 001 0, 004 0 0, 005 0, 002 0, 005 0, 024 0, 138 Generating sets, wind-powered 0, 029 Medicaments containing corticosteroid hormones 0, 028 Medicaments containing insulin but not antibiotics, 0, 028 Fresh or chilled pig meat 0, 024 Weirs, sluices, lock-gates, and other maritime structures 0, 022 Other food preparations n. e. c. 0, 021 Enzymes; prepared enzymes 0, 018 Articles of iron or steel, n. e. s. 0, 017 Other articles of plastics or other materials 0, 017 Beer made from malt 0, 342 Source: Eurostat, PRODCOM database 2013. ISO country codes. Thomas von Brasch: vonbrasch@gmail. com

How can we increase productivity? Thomas von Brasch: vonbrasch@gmail. com

1. Produce more electronics Thomas von Brasch: vonbrasch@gmail. com

Produce more electronics? Development relative to overall GDP. USA. Kilde: OECD STAN ISIC REV. 4, Industry d 26 for USA. Thomas von Brasch: vonbrasch@gmail. com

2. Fire people with a disability Thomas von Brasch: vonbrasch@gmail. com

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 Thomas von Brasch: vonbrasch@gmail. com

Future productivity growth Thomas von Brasch: vonbrasch@gmail. com

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Employment Thomas von Brasch: vonbrasch@gmail. com

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? Thomas von Brasch: vonbrasch@gmail. com

Other statistical facts about Norway Thomas von Brasch: vonbrasch@gmail. com

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: //www 3. weforum. org/docs/GGGR 14/GGGR_Complete. Report_2014. pdf Thomas von Brasch: vonbrasch@gmail. com

Gender gap index Thomas von Brasch: vonbrasch@gmail. com

Women at work Thomas von Brasch: vonbrasch@gmail. com

Women at work https: //www. regjeringen. no/no/dokumenter/meld-st-46 -20122013/id 733259/? ch=2 Thomas von Brasch: vonbrasch@gmail. com

Wise women Thomas von Brasch: vonbrasch@gmail. com

Inequality: Gini coefficient = A/(A+B) Thomas von Brasch: vonbrasch@gmail. com

Inequality (Gini coefficient) Source: https: //en. wikipedia. org/wiki/Economic_inequality Thomas von Brasch: vonbrasch@gmail. com

Employment and labour force participation rates 2012 https: //www. regjeringen. no/no/dokumenter/meld-st-46 -20122013/id 733259/? ch=2 Thomas von Brasch: vonbrasch@gmail. com

Thomas von Brasch: vonbrasch@gmail. com

Current macroeconomic situation Thomas von Brasch: vonbrasch@gmail. com

Output gap Output Potential output Actual output Time Thomas von Brasch: vonbrasch@gmail. com

Output gap in Norway Thomas von Brasch: vonbrasch@gmail. com

Stabiliser 1: Government policy – «budgetary rule» Thomas von Brasch: vonbrasch@gmail. com

Stabiliser 2: The Central Bank of Norway Thomas von Brasch: vonbrasch@gmail. com

Stabiliser 2: The Central Bank of Norway Thomas von Brasch: vonbrasch@gmail. com

Why do we have so low interest rates? Savings Investments Thomas von Brasch: vonbrasch@gmail. com

Why do we have so low interest rates? Savings Investment slump Thomas von Brasch: vonbrasch@gmail. com

Why do we have so low interest rates? Savings glut Investment slump Thomas von Brasch: vonbrasch@gmail. com

Stabiliser 3: Wage negotiations Thomas von Brasch: vonbrasch@gmail. com

Stabiliser 4: Exchange rate http: //www. economist. com/news/finance-and-economics/21674775 -currency-pegs-are-still-fashion-some-are-creaking-pegs-underpressure? frsc=dg%7 Cd Thomas von Brasch: vonbrasch@gmail. com

Stabiliser 4: Exchange rate Thomas von Brasch: vonbrasch@gmail. com

Contributions to future GDP growth Thomas von Brasch: vonbrasch@gmail. com

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 Thomas von Brasch: vonbrasch@gmail. com