Gross Domestic Production - Buisness Management - Lecture Notes, Study notes of Business Administration

Download Gross Domestic Production - Buisness Management - Lecture Notes and more Study notes Business Administration in PDF only on Docsity! Norway shows as yet no clear symptoms of the Dutch disease – other, perhaps, than a stagnant ratio of exports to GDP, albeit at a rather high level, or about 40 percent of GDP, since before the oil discoveries, indicating that Norway’s oil exports have crowded out non-oil exports krone for krone relative to income (recall Figure 1a). Moreover, as we saw in Figure 1b, Norway has attracted a relatively limited, yet gradually increasing inflow of gross foreign direct investment, equivalent to 8 percent of GDP in 1998 (adjusted for purchasing power parity; see World Bank, 2000), far below the figures for Sweden and Finland next door (23 percent and 36 percent). Nor does Norway show any signs yet of socially damaging rent-seeking behavior even if increasingly loud calls are being voiced for using more of the oil revenue to address domestic social needs rather than continue to build up the government-owned oil fund, which is invested in foreign securities. There are no signs either of a false sense of security or of an inadequate commitment to education, on the contrary. Growth has thus far remained stubbornly high. Even so, some observers of the Norwegian scene have recently expressed concerns that some deep-seated structural problems in the country’s education and health care sectors (government monopoly, insufficient competition, low efficiency, etc.) may be misdiagnosed as financial problems because the money available from the oil fund may blunt the willingness of politicians to undertake difficult structural reforms. One of the factors that separates Norway’s experience from that of OPEC is timing. Norway was already a developed country at the time of the oil discoveries in the 1970s. Most importantly, Norway’s social institutions were mature and the financial system relatively developed, although by no means fully liberalized. All of this facilitated judicious and far-sighted management of Norway’s oil wealth, at least compared with most other oil producers (Hannesson, 2001). In contrast, full-fledged capitalist development did not take place in most OPEC countries prior to the discovery of their oil resources, or since for that matter (Karl, 1997). While Norway has built up substantial assets abroad, Saudi-Arabia has accumulated debts. Norway has charted a long-run-oriented, tax-based, and reasonably market- friendly approach to the management of its vast oil resources. Exactly how vast they are depends on oil prices, which are quite volatile: estimates of the oil wealth range from 50 percent to 250 percent of GNP (Thøgersen, 1994). According to Section 1-1 of the Petroleum Act of 1996, the title to petroleum deposits on the Norwegian continental shelf is vested in the State. This means that, in principle, all the rent from 13 Docsity.com oil and gas should accrue to the Norwegian people through their government. The State’s title to these resources constitutes the legal basis for government regulation of the petroleum sector as well as for its taxation in accordance with the Petroleum Taxation Act of 1975. Exploration and production licenses are awarded for a small fee to domestic and foreign oil companies alike. Why small? Because the Norwegian government has decided to expropriate the oil and gas rent through taxes and fees as well as direct involvement in the development of the resources rather than through sales or auctioning of exploration and production rights (OECD, 1999). The State has a direct interest in most offshore oil and gas fields and, like other licensees, receives a corresponding proportion of production and other revenues, roughly 40 percent of the total. Through its direct partnership with other licensees as well as through various taxes and fees, it is estimated that the Norwegian State has managed to absorb about 80 percent of the resource rent since 1980.13 Thus, in 1997, revenues from petroleum activities accounted for more than a fifth of total government revenues and were equivalent to 9-10 percent of Norway’s mainland GNP, or 8-9 percent of total GNP, including oil. In 2000, the oil sector’s contribution rose to more than 25 percent of GNP, but it is envisaged to drop to 5 percent by 2020. The oil revenue is deposited in the Norwegian Petroleum Fund, which is being built up and invested mostly in foreign securities for the benefit of the current generation of Norwegians when they reach old age as well as for future generations, and also in order to shield the domestic economy from overheating and possible waste – a shrewd strategy, efficient and fair. At the same time, however, a variable proportion of each year’s net oil-tax revenue is transferred from the Government Petroleum Fund to the fiscal budget, essentially to cover the non-oil budget deficit. The proportion of net tax revenues from petroleum thus transferred to the government budget was about one-fourth in 1997 and almost 40 percent in 1998, but is envisaged to drop to less than ten percent in the years ahead. Even so, the Norwegians have not been tempted to expand their central government beyond reasonable limits as a result of the oil boom. Even 20 years after discovering their oil, the Norwegians continue to content themselves with smaller central government than Denmark, Finland, and especially Sweden. On the other hand, local governments (municipalities and counties), which employ over three 14 Docsity.com Figure 1c. Arab Countries: Manufacturing Exports 1963-1999 (% of Total Exports) 0 10 20 30 40 50 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 90 19 93 19 96 19 99 Six nonoil-producing Arab countries Six oil-producing Arab countries Figure 2a. Natural capital and openness 1965- 1998 -40 -30 -20 -10 0 10 20 30 40 0 10 20 30 40 50 60 Share of natural capital in national wealth 1994 (%) A ct ua l l es s pr ed ic te d ex po rt s 19 65 -9 8 (% o f G D P) Malaysia Belgium Netherlands Niger Guinea-Bissau 21 Docsity.com Figure 2b. Openness and economic growth 1965-1998 -8 -6 -4 -2 0 2 4 6 -40 -20 0 20 40 Actual less predicted exports 1965-98 (% of GDP) A nn ua l g ro w th o f G N P pe r c ap ita 1 96 5- 98 , ad ju st ed fo r i ni tia l i nc om e (% ) Botswana Malaysia Madagascar Namibia Greece Figure 3a. Corruption and natural capital 1994-2000 0 2 4 6 8 10 12 0 10 20 30 4 Share of natural capital in national wealth 1994 (%) C or ru pt io n pe rc ep tio ns in de x 20 00 0 New Zealand UK Chile Zambia Cameroon 22 Docsity.com Figure 3b. Corruption and employment in primary sector 1965-1990 (% of labor force) 0 2 4 6 8 10 12 0 20 40 60 80 10 Share of primary sector in labor force 1965-1990 (%) C or ru pt io n pe rc ep tio ns in de x 20 00 0 Ukraine Nigeria Malawi Botswana Finland Azerbaijan Indonesia Figure 3c. Corruption and economic growth 1965-1998 -10 -8 -6 -4 -2 0 2 4 0 5 10 15 Corruption perceptions index 2000 A nn ua l g ro w th o f G N P pe r c ap ita 1 96 5- 98 , a dj us te d fo r i ni tia l i nc om e (% ) Singapore Nigeria Kenya Indonesia Italy 23 Docsity.com