Norwegian paradox

"The Norwegian paradox" is a concept of Norway's economic performance when low R&D investment and high economic performance is combined together.

Description

Organization for Economic Cooperation and Development has described Norway's economic performance as a "paradox".^[1] Other scholars also name it as the "puzzle".^[2] The concept has been developed due to the combination of low innovation and high economic performance in the country. Even when the rents of oil and gas sector are excluded, Norway's productivity and income are among the highest in the world. However, at the same time Norwegian R&D investment has a relatively small share of country's GDP compared to other industrial economies.^[3]

Theoretical Background

Schumpeterian approach plays an important role on the theoretical perspective of innovation-and-growth literature. Joseph Schumpeterbriefly analysed the role of radical innovations and evaluated the importance of their influences on the economic system. Other scholars such as Freeman and Nelson continued the research by emphasizing the paradigmatic and sector specific view of the whole technological change process combined with the economic growth.

Analysis & Critique

Even though the concept of Norwegian "paradox" has been used in the literature, a number of different researchers present further analysis and critique. Fagerberg argues that the "paradox" should be analysed by combining three interrelated aspects of Norwegian economic development. These are innovation, path-dependency, and policy. Norway's innovative performance had been scientifically influenced by the ability of Norwegian entrepreneurs, firms, and public sector actors. They were able to understand the hidden opportunities, mobilize resources, adopt current capabilities and develop new ones. Furthermore, development of appropriate institutions and policies helped to support successful growth. Furthermore, the historical development of Norway's national innovation system was significantly impacted by the path-dependency. Norway has not been successful in developing non-resource based industries, yet managed to achieve substantial results in resource-based industry development and resource-based innovation elaboration. Norway's resource-based sectors have beneficially contributed towards developing knowledge and adapting to new challenges. Finally, Norwegian institutions and politics managed to extend a relatively narrow definition of science, technology, and innovation policy. Due to this, broad perspective of innovation systems was successfully implemented. Furthermore, other scholars suggest different analysis of the Norwegian "paradox". Fulvio Castellacci argues that characterization of Norway's economy as combination of low innovation and high economic performance is inaccurate. The problem in Norway is not with innovative activities yet as it is commonly believed yet it is more related to the sectoral composition of the economy.

1. ^ OECD (2007) Economic Surveys: Norway, Paris: OECD
2. ^ Castellacci, F. (2008). Innovation in Norway in a European perspective. Nordic Journal of Political Economy, 34, 1-43
3. ^ Fagerberg, J. et al. (2009). Innovation-systems, path-dependency and policy: The co-evolution of science, technology and innovation policy and industrial structure in a small, resource-based economy.