Is Norway immune to Dutch Disease? CGE estimates of sustainable wage growth and de-industrialisation
Year: 2005
Type: preprint
Abstract: Norway's petroleum wealth has become considerably more liquid and thereby visible to the public\nsince the mid 1990s. In the policy debate transformation of wealth is often confused with ordinary\nincome. Such a misconception may have contributed to de-industrialisation through real appreciation\nbeyond what is sustainable in a long run perspective. Since re-industrialisation is typically considered\ndifficult, it is important to estimate a norm for sustainable wage growth. In Norway the textbook model\nof the Small Open Economy (SOE) has often been used for this purpose. We argue that this model\nneglects important aspects of the Norwegian economy. Instead we use a large scale dynamic CGEmodel\nto estimate sustainable paths for wage growth and the activity in the traded goods sector,\nespecially manufacturing. Under plausible assumptions we find that about 0.5 percent annual\nreduction of manufacturing employment is sustainable. The real appreciation over the last 7 years\nhas been substantially above a sustainable trend.\nKeywords: Dutch Disease, multi-sector growth, dynamic CGE-modelling.
Authors: Erling Holmøy, Kim Massey Heide
Language: English
Topic: Economic Theory and Policy
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W172250000