No. 4/2020: The long Norwegian boom: Dutch disease after all?

Abstract

The Norwegian non-oil economy has benefitted greatly from the presence of the oil sector. Compared to neighboring and otherwise similar Sweden, Norwegian non-oil ("mainland") firms on average receive significantly higher product prices and pay higher wages. This development can be explained by a model where oil companies drive up the prices of domestic suppliers as they consider foreign suppliers imperfect and inferior substitutes. Although productivity also improved, the resulting increased prosperity is mainly the result of higher prices and wages. Despite a tax system designed to channel the entire resource rent into the sovereign wealth fund, more than half of the resource rent may have leaked to the private, non-oil economy because of the mechanisms studied here. Because the bonanza must end with the oil industry, important productivity gains have not saved Norway from the Dutch disease.