Economic Development Essay
Economic development is a very important and critical process which is used by governments, businesses and corporations to ensure a stable and a reliable economy which is capable of supporting the needs of the people and wealth creation. It is the effort which is applied by these stakeholders in ensuring that the country’s economy is improved and that people of that country lead a quality life as a result of job creation and retainment, improvement of the literacy rates, improvement of the life expectancy and supporting income growth as well as having a strong tax base. The process also involves the reduction of poverty rates and as a result ensures an all round development in all sectors.
Norway is located in the northern part of Europe and it is among the wealthiest countries in the world in terms of its per capita gross domestic product as well as in its capital stock. Norway’s economy in the past was based on localized farming, fishing, hunting and merchants industries but now its main economy is based on petroleum and it is rich in many other raw materials which helps it to be a prosperous economy and its ability to turn its available raw
Need essay sample on "Economic Development"? We will write a custom essay sample specifically for you for only $ 13.90/page
There are various issues which have been raised in the Norway economic policy as a result of it being an oil exporting company, concerns were raised that much of its human resource was concentrated in the oil industry and therefore the other industries lacked enough human capital for their development (Ragaei; Øystein &Barry 1985). Criticisms pointed towards the country say that Norway’s economy is highly dependent on the natural resources such that its economic growth is very vulnerable to fluctuations in the pricing and demand of natural resources since most of its labor is not sufficiently skilled. The oil boom in the country which occurred in the 70s made the government to dedicate very little incentives towards the encouragement of developing new industries in its private sector.
However in the recent past, the national as well as the local government of Norway has started to provide some incentives in the process of encouraging investors and the locals to for new industries which will be able to compete internationally so that its economy does not depend on the petroleum industry only since there are many threats associated with it. There has also been development of high-tech industries and small businesses have been encouraged to develop since they will be a source of employment for the growing population in the future.
In its quest to develop a broad economy, Norway has adapted an economic development process which helps it to ensure a stable and consistent development in the other sectors of the economy. In the economic development process policies, there are three major areas which are looked at; this is the government policies which are meant to meet the set objectives , the policies and programs for provision of infrastructure and the programs and policies which lead to job creation in the country.
The government of Norway has undertaken various steps towards meeting its economic objectives, these objectives were tailored towards price stability in the economy, high employment rates, and an economic growth which is sustainable. The efforts which have been made towards achievement these objectives are the establishment of fiscal policies, regulation of the trade systems, tax policies as well as the financial institutions. There has been a robust micro economic policy framework which has been set in the economy and it is used in managing the impact of the oil wealth in the country which seems to be destabilizing and therefore makes the economy to be strong.
The government introduced a formal inflation target for the monetary policy in 2001 which was to be almost 2.5% and this helped the country to have a low and stable inflation rate which is a very important contribution which monetary policy can make towards economic development of a country and it provided Norway with an economy with a nominal anchor. The low and stable inflation rates made the stakeholders in the economy to distinguish the changes in the general price level from the changes in relative prices and therefore they were able to keep the prices stable and therefore the inflation rates were also kept low and the output as well as the employments were kept stable.
The government of Norway has prudently managed the national resources of the country and this has been a hallmark of public governance of the country and it is the one which has been behind the successful economy of the country. The government ensures that the natural resources have been maximumly exploited for the interest of the citizens and the future generation, this view argues that the more money from oil which can be saved now or which can be used in improving the foundation of the economy, the more the high growth and the fiscal solvency of the country will be secured as the pension system and the population ages in Norway matures.
Without withstanding a constrained long run budget which is enhanced by the windfall of the oil prices, the government seeks to restrict spending programs which are expansive and fund the people from their pensions. This however involves management of the expenditure programs and tax as well as subsidy policies which are transparent and in particular, the money from the oil which is used to subsidize the non employment situations in the country have to be examined so that there can be available money to loan the people.
In the quest of developing the economy of the country, the government has involved itself in holding shares in various enterprises and it also participates in the joint industrial undertakings and it has set its government policies with the aim of attracting the foreign investors into the country. The major governmental goals is to exploit the resources in the country and ensure a rapid development of industries and especially in the northern parts of the country where the economic development is not as vibrant as in the southern parts of the country. There has been an introduction of programs in Norway whose main aim is to improve the infrastructures of the country and also to reduce the unemployment rates.
There has been policies and programs which have been set in Norway which help in development of its infrastructure and providing public infrastructure services such as highways, housing which is affordable to it residents, good telecommunication infrastructure,prevention of crime in the country and provision of education which can be useful in the modern economic development. In the process of developing its telecommunication network, the government of Norway has set up various methods which ensures good telecommunication infrastructure, these methods are such as fostering of competition in the industry by encouraging the people to invest more into the sector and also attracting investors to invest in the sector.
The government has also set measures which help in increasing the demand for the telecommunication services and it has also enabled connection to all of the schools in the country ranging from the primary to the secondary schools and the public facilities such as public libraries, local governments and public hospitals. There has been promotions of the broadband market so that most of the households in the country can be able to have the facility as it is a high speed connectivity which is done through the access networks and helps in high speed communications both in the homes and businesses as well as in public facilities (Oecd & OECD, 2007).
The deindustrialisation process which took place in Norway had negative effects which were similar to the other OECD countries, there was loss of jobs mostly in the industries which are labor intensive such as the paper mills, steel and metal mines and the textile manufacturing industries. Due to this, the country removed its trade barriers and there was also destruction of the blue collar jobs. However, these job losses were offset by the job creations which took place in the in the private services as well as the public sector of the economy. The restructuring process in the country was a response to the changes in the relative prices of commodities, increase in the growth of income, financial liberalization, the comparative advantage and the growing competition.
The country has undertaken a process of improving its education system which will ensure that the students undergo training and education process which will make them be capable of joining the labor market and doing their work well and therefore add to the economic development of the country. This has been done through increased supervision in the schools and their performance are frequently evaluated so that it can be determined whether they are getting quality education. The government is also planning to change the curriculum system into a system which will enable them to have basic skills and insists on distinct learning targets as well as good evaluation process.
The tax systems for the country has also been reformed as one of the steps in economic development, the budgets which has been set for the 2007 fiscal year was reversed and there has been tax cuts, The extra resources which are gained from this are then used by the government in the society due to the increased spending. The tax system for the country is also being adjusted in such a way that it will be more progressive by raising raising the tax of wealthy, lowering the threshold for the top income tax rates and revaluing of the properties due to the frequent appreciation of properties. The government also increases the allowances which are offered to the low income earners so that they can have better living standards (Oecd & OECD, 2007).
There has been plans to develop the renewable energy resources in the country and to achieve this, the government has widened the tax for the firms which produces the carbon dioxide gas and then the excess resources are used in the development of new technologies for curbing the gas emissions in the gas plants and this helps in the development of the economy and also in preservation of the environment.
The government has also promoted competition in many of the sectors of the economy, this includes the agricultural sector, the postal sectors and due to this it creates entry barriers, there has also been enhancement of the transport services where the government has made a plan to stop any new tenders dealing with railway transport so that they services which are provided can be efficient and of good quality.
Norway has currently set an institutional framework which helps in the macroeconomic stabilization and this framework assigns to the monetary policy the task of looking into the inflation rates taking place in the economy and also stabilization of the growth in the economy. At the same time, the fiscal policies have been set to look at the real exchange rates in the market and this frame work has performed well and has helped in the economic growth of the country.
The framework rests in four pillars which are the flexible exchange rate where the monetary policy of the country is geared towards the stabilization of the exchange rate in the country while the fiscal policy is used in the stabilization of the economy therefore creating a stable economy which ensures smooth development. The oil refund was been set up in the economy of the country where it has been used to invest the revenues which are gained from oil abroad and therefore neutralize the impacts of the exchange rates and also prevent the disruptions which may face the real economy.
After the adaption of the inflation target, there was also a creation of fiscal rules which were effected in 2002 and the fiscal rules are used in Norway to specify a gradual phasing in the money from oil into the fiscal budget. The main objective of creating the fiscal objective was to make future fiscal spending pressure which is as far as possible stable and also be predictable and as a result therefore, the real exchange rates expectations will be stabilized and the exchange rate which is currently used will have already incorporated these expectations (Oecd & OECD, 2007).
Norway has adapted advanced technology in its undertakings to ensure that the economic development process will be successful. Through the technology, Norway has been able to make better and cheap products and services for its people, the country has also been able to be more innovative although the innovation standards for the country are still low since many of the firms have adapted technologies which are already in existence so as to boost the efficiency in their production instead of investing their own technologies.
The Norway’s industrial structure is mainly based on the small and low firms and this as well reflected in its outputs in the education sector where the important degrees such as mathematics and science and technology are given very low demands in its universities. The country therefore is faced with a future threat since the economic growth potential in the future will greatly depend on innovations especially in the oil sector as the knowledge spillovers which are up to now will have aged and this will limits the labor input in the future of its economy. Further more, the country’s lack of good individual career choices and lack of prestigious positions makes the people lack good decision making in their undertakings and this reduces their level of competitiveness which also undermines their competitiveness (Bibee & Bellone 2007).
There is less need for technical competency so as to recognize as well adapt the upcoming technologies in facing the global competition, therefore, the country needs to have a greater policy focus in improving the framework conditions for competition as well as for risk taking in the economic development process, through the involvement of stronger competition policies, a reduced public ownership in the economy and development of the market development, there would be stimulation of a greater need for innovation as well as scientific and mathematical skills (Bibee & Bellone 2007). Innovation need in Norway has also been spurred by the intense competition which exists in the area, due to the upcoming new sectors of economy and especially the private sector, the firms are forced to stop their outsourcing tradition and instead create their own innovative technologies so that they can be able to keep up with the competition rates which are growing gradually (Giguere & organization for economic cooperation and development 2004).
The abundant resources which are available in the country and as a result of the low labor, the country is also forced to concentrate on innovation. Through its market expertise and quality processes and procedures, presence of low employment and the above average economy, Norway’s economy is strong.
The country has a raising labor force and has participation rates therefore has a strong market, however, there are various threats which are faced by the country, these are such as its ability to maintain strong incentives, uncertain monetary policies and uncertain inflation focus therefore its future is not clear. The weaknesses which are there in the economy is that despite the country having a low unemployment rate, there are other forms of non work issues which are arising in the country such as disabilities, early retirements and sicknesses which therefore means that there are few people to replace such cases and therefore the country is likely to be faced by a low labor crisis.
The country is rated as having the highest cases of disability in the region and therefore there may not be enough labor in the market and the one that is available may not have the desired skills for the positions which they may be taking and this will greatly affect the economic situation of the country. As the country invests in the other sectors of the economy apart from the oil industry, it means that it will have industries which are related and which will support each other in the economy and through this support therefore, the country has become more competitive in the region since the industries support each other in development and they can provide raw materials for each other.
Norway can be said to be self reinforcing, this is due to the presence of the oil industry in the country which is the major contributor in the economy as well as the economic development as it provides most of the economy’s revenue and boosts it in economic development. As a result therefore, most of the workers available in Norway have oil industry specific training and they get higher returns for their work and they also have a low chance of losing their employment since they are already specialized in their field. T
he oil industry has also led to development of intermediate industries in the country and since the oil industry had already contributed in most of the infrastructure development, the industries are able to make additional saving since they do not have to add on the transport, tarries, communications and other costs and hence they use these savings in boosting their industries and investing in the other areas of the economy and therefore boosting the country’s economy.
The government of Norway is working as a catalyst in the economic development as it encourages the companies and even pushes them to have higher competition levels in their performance and through this, the industries have worked with determination and this has greatly improved the economic development especially the private sector of the economy.
In conclusion, the development of the oil industry in the economy of Norway has greatly helped the country as the revenues which are derived from the industry have strongly contributed to the economy of the country making it overtake its neighbors and also has become one of the best economies in the world. Its liberalized economy, labor with oil industry specializations, its traditional openness in trade and the diffusion of high technology in its industries despite the low innovation rates explains the great success that the country has been able to achieve.
Norway has been a major benefactor of the wave of globalization since other surrounding countries supply it with goods at low prices while on the other side the country continues to raise the cost of fuel and its by products. The raising inflows of the foreign goods in the country has helped it to be more competitive and the country’s monetary and fiscal policies has helped it in delivering low inflation rates as well as strong growth. However, there are challenges which are faced by the country, these are a possibility of economic overheating, due to the international policies and reversal of the favorable supply shocks in he international market, they have a limited cost of labor and there is a potential damage to work incentives as a result of the lax public welfare programs and these poses a danger to the economy and its development.
- Bibbee A. & Bellone B. 2007, Economic survey of Norway 2007,
- OECD Economics Department
- Giguere S., & organization for economic cooperation and development, 2004, New forms of governance for economic development, ISBN: 9264015302.
- OECD publishing
Oecd & OECD, 2007 Oecd Economic surveys:Norway 2007, ISBN: 9264031251
- OECD publishing,
- Ragaei E. M; Øystein N. & Barry W. P., 1985 Petroleum and Economic Development: The Cases of Mexico and Norway, Southern Economic Journal,,Vol. 51(3), pp. 958-959
- Whaples R. 2008, The Economic History of Norway”. EH.Net Encyclopedia. http://eh.net/encyclopedia/article/grytten.norway