The exploitation of hydrocarbons in Norway: lessons about challenges and achievements of specializing in non-renewable resources

Project facts

Project promoter
Complutense University of Madrid
Project Number:
ES07-0071
Target groups
Researchers or scientists
Status:
Completed
Initial project cost:
€16,940
Final project cost:
€16,909
From EEA Grants:
€ 16,909
The project is carried out in:
Spain

Description

Norway is the fifth country in terms of GDP per capita, and most of its success is due to the development of the oil sector. These achievements stand in contrast to the negative experiences of developing economies that suffer from the so called “resource curse” and were unable to develop a local industry based on their raw materials. The project promoter, a PhD candidate from the Complutense University of Madrid, intends to finish her doctoral thesis “The exploitation of hydrocarbons in Norway" which tries to identify policy tools used by the Norwegian authorities that could be implemented in underdeveloped regions in order to stimulate their industrial base, generate innovation and growth and enhance the population’s standards of living. The results are of interest to academic and industrial people, especially from developing countries. The donor partner, the University of Oslo, will participate with knowledge from a multidisciplinary point of view that includes studies on the politics of expertise and the interrelationships between science, expertise, regulatory politics, and markets.

Summary of project results

Outside Norway the impression was that everything was going smoothly in this Nordic county’s economy (at least until the end of 2014 when oil prices fell 50%); it held the first place at the UN’s Human Development Index ranking, unemployment is still very low, the country managed to recover swiftly from the financial crisis and due to high oil prices until mid-2014, macroeconomic indicators caused envy all across Europe. All official reports published by the Norwegian Central Bank and the Ministry of Finance focused on the country’s sound economic background and its thriftiness. On the other hand, some authors argue that the country may very well face many challenges in the future, due to its dependence on the oil industry and lack of other activities which are not connected to the extraction of this raw material. Main findings of the research carried out show that from a macroeconomic point of view, the management of the oil revenues has been quite a success when fiscal policy and monetary policy is concerned. The State achieved to create a set of policy mechanisms that avoids the spending effect caused by the public sector. Fiscal policy has been successful and monitory policy based on inflation targeting has acted as a supervisor of the fiscal policy; besides, Norway was able to develop a competitive oil supply industry. But there are some symptoms of the so called Dutch disease at the labour market and the economic structure. Prices in Norway are very high and while the values of imports have declined, there have been steady rises in the prices of non-tradable goods and services. Labour unit costs have increased much more than in other Western countries, which resulted in a loss of competitiveness. This is reflected in a higher real effective exchange rate and the composition of the balance of trade, particularly the balance of goods, characterized by a huge surplus in crude oil trade but an increasing deficit when manufacturing goods are taken into account. These latter problems are somewhat mitigated by the inflow of cheaper labour from the new EU countries (as Poland and the Baltic States) and the depreciation of the Norwegian krone since mid-2014, in line with the oil price slump, but structural problems still persist in the composition of economic sectors. Within the project, several seminars, interviews and meetings have been held and at least five papers have been published or are under preparation.

Summary of bilateral results

Guided and helped by the Center for Applied Research, the PhD student granted has interviewed 19 people from different universities and institutions in Norway. The major benefit of the partnership was getting to know people from Norway who have first- hand information about their country’s economy and politics, with whom Ester Wirth is willing to keep in touch in order to finish her PhD thesis, write articles and presumably introduce them to researchers from her department. The stays within NILS programme where useful to get an insight into other points of view concerning the Norwegian oil and gas industry and the management of their revenues, some of them much more critical than the information provided by the government and Central Bam. She was able to collect a series of positive aspects and downsides of the Norwegian model but in all, her diagnosis is still positive, especially compared to other oil – rich economies.