Is Norway immune to Dutch Disease? CGE estimates of sustainable wage growth and de-industrialisation
Working paper
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http://hdl.handle.net/11250/180213Utgivelsesdato
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- Discussion Papers [1002]
Sammendrag
Norway's petroleum wealth has become considerably more liquid and thereby visible to the public
since the mid 1990s. In the policy debate transformation of wealth is often confused with ordinary
income. Such a misconception may have contributed to de-industrialisation through real appreciation
beyond what is sustainable in a long run perspective. Since re-industrialisation is typically considered
difficult, it is important to estimate a norm for sustainable wage growth. In Norway the textbook model
of the Small Open Economy (SOE) has often been used for this purpose. We argue that this model
neglects important aspects of the Norwegian economy. Instead we use a large scale dynamic CGEmodel
to estimate sustainable paths for wage growth and the activity in the traded goods sector,
especially manufacturing. Under plausible assumptions we find that about 0.5 percent annual
reduction of manufacturing employment is sustainable. The real appreciation over the last 7 years
has been substantially above a sustainable trend.
Keywords: Dutch Disease, multi-sector growth, dynamic CGE-modelling.