Norway - Shallower Recession and Better Placed

According to some measures, Norway has the strongest currency in the world. Outside of the EU but inside the single market, Norway is often held up as a example of a path that the UK might follow if relations with the rest of the ever broke down irrevocably. An unlikely scenario? Yes, and there are also big differences in the structure of the Norwegian economy compared to ours.

This BBC article highlights that Norway has not been immune from the chill recessionary winds affecting the European continent. But it has the fiscal resources to fight back - not least the cushion provided by the long term growth of her sovereign wealth fund.

Norway has twice held a referendum on joining the EU - in 1972 and 1994. On both occasions the vote was negative. It is a member of the European Economic Area (EEA) and is free to introduce its own import controls on goods and services from outside the EU and the EEA. Norway has implemented over 3,000 pieces of EU legislation (e.g. new EU directives, decisions or regulations). And it makes a financial contribution to the EU – of approximately £250m per year – which in per capita terms is a high figure.

Norway has enjoyed many years of strong economic performance
1. Strong rise in relative per capita incomes – one of the highest in Europe
2. Helped by rising oil exports and timber prices
3. High and rising trade surplus in goods – an injection of AD into the circular flow
4. Oil and gas production among highest in the world but now past the peak – Norway has a special sovereign investment fund to help the transition of the economy away from oil production
5. Lower interest rates than the UK
6. Strong currency against the US dollar – a reflection of her strong economic record

Does it need to take the next step and become a full member of the European Union?

• Norwegian trade is already closely tied to EU – there might be few gains in terms of intra-EU trade from joining the single market
• Special situation with fisheries suggests a desire to stay out of the Common Fisheries Policy
• Norway is an oil rich country – there are some benefits from having monetary policy freedom and floating exchange rate in case of global external shocks
• Little agriculture – therefore Norway would pay in lots for CAP but get virtually nothing back in return
• Norway retains a strong desire for economic policy independence
• But it suffers from “fax democracy” by being inside the single market but remaining outside of the EU institutions – it is required to implement single market measures without any leverage in terms of influencing these policy decisions.

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Revision notes on unemployment [20 May 2012]
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Grexit - Andrew Balls on Greece and the Euro [16 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 2 Macro: Model answer for revision data question [9 May 2012]
Unit 2 Macro: 10 Key Revision Topics for EdExcel [7 May 2012]
F585: Recent Articles of Relevance [6 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Unit 2 Macro: Trade and Balance of Payments Glossary [5 May 2012]
Macro Revision - Key Statistics on the UK Economy [4 May 2012]
Macro Revision: Putting Things in Context [29 Apr 2012]
Tullow Oil and African Development [25 Apr 2012]
Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 1 Micro: Externalities - Deepwater Horizon 2 Years On [21 Apr 2012]
Unit 2 Macro: Globalisation and the Growth of Ports [10 Apr 2012]
Unit 2 Macro: The UK Balance of Payments in 2011 [4 Apr 2012]
Unit 2 Macro: Revision on Interest Rates and the Exchange Rate [3 Apr 2012]
Unit 4 Macro: Pain in Spain as Fiscal Austerity Bites [1 Apr 2012]
Unit 1 Micro: Revision on Producer Cartels [31 Mar 2012]
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Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
George Buckley at the Millfield Economics Society [28 Mar 2012]
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Unit 4 Macro: Video Resources on the Euro Crisis [10 Mar 2012]
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Unit 2 Macro: Policies to Drive Economic Recovery [9 Mar 2012]
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Unit 4 Macro: Sovereign Wealth Funds [4 Mar 2012]
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Martin Wolf on Global Shocks [10 Feb 2012]
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Unit 2 Macro: Focus on China - Trade and Growth [27 Jan 2012]
Unit 4 Macro: Focus on India - Economic Growth [24 Jan 2012]
Unit 2 Macro: Exporting to the Booming Chinese Economy [23 Jan 2012]
Unit 4 Macro: Russia Joins the WTO [22 Jan 2012]
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Unit 4 Macro: Competitive Advantage in Trade (Some Videos) [12 Jan 2012]
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Unit 1 Micro: Low Cost Airlines Beat the Recession [1 Jan 2012]
Unit 4 Macro: Exchange Rate Economics - Where next for the US Dollar? [31 Dec 2011]
European Economics: Resources on the CAP [28 Dec 2011]
Unit 2 Macro: Brazil Overtakes UK in Economic Size [26 Dec 2011]
The Eurozone Crisis Explained (again!) [22 Dec 2011]
Unit 4 Macro: Celebrating (?) Ten Years of Euro Notes and Coins [2 Dec 2011]
Beyond the Bike - The Value of Money [19 Nov 2011]
Unit 2 Macro: Should the EU introduce a Tobin Tax? [14 Nov 2011]
AS Macro: The State of British Business [13 Nov 2011]
Eurozone crisis - a selection of resources [12 Nov 2011]
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Unit 4 Macro: When China Met Africa [1 Oct 2011]
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AS Macro Key Term: Recession [23 May 2011]
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Unit 3 Micro: Monopsony Power in Markets [19 May 2011]
A2 Micro: High and Low Marginal Cost Products [19 May 2011]
EU Economics: Comparing the UK with Europe [14 May 2011]
A2 Macro: Revealed Advantage [12 May 2011]
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