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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: [email protected]
6
Sources of wealth
• Productivity– Petroleum– Other
• Terms of trade – Petroleum– Other
• Movements between oil and other industries• Transfers to abroad (net)
Thomas von Brasch: [email protected]
Decomposition of growth in real disposable income
Thomas von Brasch: [email protected]
-100
0
100
200
300
400
5001
97
1
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
Hours worked per capita
Balance of income and current transfers
Terms of trade, other
Terms of trade, oil and gas
Labour reallocation gains
Productivity growth, mainland
Productivity growth, oil
Main drivers of productivity
• Human capital– Level of education– ICT knowledge
• Research and development
Thomas von Brasch: [email protected]
Level of education
Thomas von Brasch: [email protected], 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
ICT knowledge
Thomas von Brasch: [email protected] (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)
Thomas von Brasch: [email protected]
AUS
AUT
BEL
CAN
CHE
DEU
DNK
ESP
FIN
FRA
GBR
ISL
ITA
JPNNLD
NOR
NZL
PRT
SWE
USA
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
0,0 0,5 1,0 1,5 2,0 2,5
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).
Thomas von Brasch: [email protected]
R&D: controlling for industry composition
Thomas von Brasch: [email protected]
02
4P
OL
SV
K
ES
P
ITA
HU
N
PR
T
NO
R
CZ
E
IRL
GB
R
NLD
AU
S
SV
N
BE
L
ES
T
FR
A
AU
T
DE
U
US
A
DN
K
JP
N
SW
E
KO
R
FIN
%
Una
dju
ste
d b
usin
ess R
&D
in
ten
sity
Ad
juste
d b
usin
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)
Labour productivity
Thomas von Brasch: [email protected]
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
Norway
Norway, Mainland
Belgium
Netherlands
Denmark
France
Germany
Sweden
Austria
Spain
Finland
Italy
United Kingdom
Iceland
Greece
Portugal
Estonia
Poland
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?
Thomas von Brasch: [email protected]
Productivity and Purchasing Power Parities
• Purchasing Power Parities compares price levels between countries:
𝑃𝑃𝑃 = 𝑃𝑗/𝑃𝑘
• They are essential when comparing productivity between countries
𝐺𝐷𝑃𝑗
𝑃𝑃𝑃 𝐺𝐷𝑃𝑘
Thomas von Brasch: [email protected]
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 then𝑃𝑃𝑃 = 1
• Relative productivity is then measured by𝐺𝐷𝑃𝑗
𝑃𝑃𝑃 𝐺𝐷𝑃𝑘= 𝐺𝐷𝑃𝑗
𝐺𝐷𝑃𝑘
Thomas von Brasch: [email protected]
Impact from industry composition on productivity
• Assume further that country 𝑗 is a large oil exporter and that the oilprice increases. Value added in constant prices will then increase most in country 𝑗.
• Even if nothing has happened with productivity, the increase in oilprices will result in an increased of measured productivity:
𝐺𝐷𝑃𝑗
𝐺𝐷𝑃𝑘
Thomas von Brasch: [email protected]
Productivity – relative to USGDP per hour, two different base years
Thomas von Brasch: [email protected]
-0,3 -0,2 -0,1 0,0 0,1 0,2 0,3 0,4
Norway
Mainland Norway
Denmark
Fance
Germany
Sweden
Finland
2013 (base year 2013)
2013 (base year 1998)
The Norwegian Puzzle
• Not that low R&D investments• Not as productive as previously believed• Not as puzzling after all
Thomas von Brasch: [email protected]
Thomas von Brasch: [email protected]
Can one compare productivity between countries with different industry structures?
Sectoral composition and productivity
• Example:– Country𝑗 produces 1 banana per hour– Country 𝑘 produces 2 apples per hour
• Which country is most productive?
Thomas von Brasch: [email protected]
Sectoral composition and productivity
• Split production in three categoriesA. Products made by both country 𝑗 and 𝑘B. Products made by country 𝑗 onlyC. Products made by country 𝑘 only
• Productivity comparisons across countries relates to A• But, how large is the common set of production?
Thomas von Brasch: [email protected]
Equal sectoral composition?
Thomas von Brasch: [email protected]
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 Product
0,072 0 Unwrought aluminium alloys
0,058 0 Offshore vessels
0,057 0 Fitting out services of ships and floating platforms and structures
0,037 0 Design and assembly of automated production plants
0,037 0 Repairing of ships, boats and floating structures
0,035 0 Frozen whole salt water fish
0,025 0,012 Other structures principally of sheet: other
0,021 0,003 Fresh or chilled fish fillets and other fish meat without bones
0,019 0,013 Fresh or chilled cuts, of beef and veal
0,019 0,001 Frozen fish fillets
0,380 0,029
0 0,138 Generating sets, wind-powered
0 0,029 Medicaments containing corticosteroid hormones
0 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 structures
0,004 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 materials
0,005 0,017 Beer made from malt
0,024 0,342
Thomas von Brasch: [email protected]
Shares of production, 2013
Source: Eurostat, PRODCOM database 2013. ISO country codes.
Produce more electronics?
Thomas von Brasch: [email protected]
Kilde: OECD STAN ISIC REV. 4, Industry d26 for USA.
Development relative to overall GDP. USA.
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: [email protected]
41
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: [email protected]
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
Thomas von Brasch: [email protected] Economic Forum: http://www3.weforum.org/docs/GGGR14/GGGR_CompleteReport_2014.pdf
Thomas von Brasch: [email protected]
Inequality (Gini coefficient)
Thomas von Brasch: [email protected]
Source: https://en.wikipedia.org/wiki/Economic_inequality
Stabiliser 4: Exchange rate
Thomas von Brasch: [email protected]://www.economist.com/news/finance-and-economics/21674775-currency-pegs-are-still-fashion-some-are-creaking-pegs-under-pressure?frsc=dg%7Cd
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: [email protected]
