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The Long Norwegian Boom: Dutch Disease After All?

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Abstract:
Norway's famed success against the Dutch disease did not extend to the petroleum investment boom of 2000–19. This paper takes a fresh look at the post-2000 data and shifts the focus from quantities and productivity to product prices and wages. Sweden, which is used as the control, had similar developments for real GDP and productivity, but mainland Norway outpaced Sweden in terms of product prices and wages, far in excess of the corresponding divergence of consumer prices. This real appreciation is explained as a result of new demand pressure from oil companies with a strong home bias. It also implies that about half of the resource rent, all of which was to be appropriated by the government, leaked to the private sector. Thus, rent management has not been nearly as effective as claimed. And the real appreciation is likely to cause major adjustment problems once the resource boom ends.

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Keywords: Resource boom, Home bias, Rent diversion, Dutch disease, Norway

DOI: 10.5547/01956574.43.3.kmor

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Published in Volume 43, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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