Download Openness, Specialisation and Vulnerability of the Nordic Countries

ETLA Raportit
ETLA Reports
27 March 2014
No 21
Openness, Specialisation
and Vulnerability of the
Nordic Countries
Ville Kaitila* – Tuomo Virkola**
*
**
ETLA – The Research Institute of the Finnish Economy, [email protected]
ETLA – The Research Institute of the Finnish Economy, [email protected]
Suggested citation: Kaitila, Ville & Virkola, Tuomo (27.3.2014). “Openness, Specialisation and Vulnerability of the Nordic Countries”.
ETLA Reports No 21. http://pub.etla.fi/ETLA-Raportit-Reports-21.pdf
We thank the Nordic Council of Ministers for funding this research paper. We thank Markku Kotilainen and Vesa Vihriälä
for helpful comments. Any errors are our own.
ISSN-L2323-2447
ISSN 2323-2447 (print)
ISSN 2323-2455 (online)
Contents
Abstract
2
Tiivistelmä2
1Introduction
3
2Openness
2.1Trade
2.2
Foreign Direct Investment
2.3
Multinational enterprises
4
4
6
7
3Specialisation
3.1Exports
3.2
Revealed Comparative Advantage
3.3
Value added exports
10
10
14
15
4Vulnerability
4.1
Terms of trade
4.2Specialisation
4.3
Exporting Enterprises
19
19
21
21
5Conclusions
23
References
Appendix
24
25
Openness, Specialisation and Vulnerability of the Nordic Countries
Abstract
In this paper we analyse to what extent the Nordic economies are vulnerable to external shocks. Specifically, we assess the conventional wisdom that the Nordic countries are small open economies that are significantly engaged in international trade, specialised in only few specific industries and, as a consequence,
extremely dependent on the competiveness of their tradable sector and exposed to external shocks. To
study this conventional wisdom, we employ a comprehensive set of indicators about trade openness, specialisation and vulnerability. While we do find that the Nordic countries are open economies, though not
to an exceptional degree, we also find significant heterogeneity across these countries with respect to
their vulnerability.
Key words: International trade, small open economy, Nordic countries, specialisation, vulnerability
JEL: F14, F6, L00
Pohjoismaiden avoimuus, erikoistuminen ja shokkiherkkyys
Tiivistelmä
Tässä tutkimuksessa tarkastellaan Pohjoismaiden alttiutta ulkoisille taloudellisille shokeille. Arvioimme
vakiintunutta käsitystä, että Pohjoismaat ovat pieniä ulkomaankaupasta riippuvaisia avotalouksia, jotka
ovat erikoistuneet vain harvoihin toimialoihin. Tämän seurauksena ne ovat hyvin riippuvaisia avoimen
sektorinsa kilpailukyvystä ja alttiita ulkoisille shokeille. Analyysissa käytetään laajaa tilastomateriaalia ulkomaankaupan avoimuudesta, erikoistumisesta ja herkkyydestä. Tulosten mukaan Pohjoismaat ovat avoimia talouksia, joskaan eivät poikkeuksellisen avoimia. Maiden välillä on lisäksi huomattavia eroja shokkiherkkyyden suhteen.
Asiasanat: Kansainvälinen kauppa, pieni avotalous, Pohjoismaat, erikoistuminen, shokkiherkkyys
JEL: F14, F6, L00
Openness, Specialisation and Vulnerability of the Nordic Countries
3
1Introduction
It is often argued that the Nordic countries – Denmark, Finland, Iceland, Norway and Sweden – are particularly vulnerable to external shocks and very dependent on the competiveness
of their tradable sector. This argument is based on the conventional wisdom that the Nordic
countries are small open economies that are specialised in just a few selected industries. Yet
the recent economic and financial crisis has had heterogeneous effects on economic activity in
the Nordic countries. Iceland and Finland were hit hardest, while Norway escaped with very
little damage.
In this paper we aim to assess to what extent the conventional wisdom holds true. In particular, we employ a comprehensive set of indicators to analyse the openness and vulnerability of
the Nordic economies to external shocks. We study foreign trade, export structure, foreign direct investment (FDI) and cross-border activities of multinational enterprises (MNEs). We
note that traditional measures, based on gross trade figures, potentially mislead any interpretation of openness and the significance of international trade as they fail to acknowledge the
nature of global value chains, where the production of export goods is increasingly geographically fragmented. In addition, we motivate that we need a heterogeneous set of indicators in
order to evaluate vulnerability.
Our analysis first suggests that the Nordic countries are indeed open economies. This is supported by the significant share of value added that is created in their tradable sector. However, they are not significantly more open than comparable small economies in Europe, or even
Germany which is a much larger economy. Second, we find that there is significant heterogeneity among the five countries in terms of specialisation. In particular, Iceland and Norway are
extremely concentrated in producing and exporting a few goods (in particular fish, oil, natural
gas and aluminium), but Finland, Sweden and especially Denmark, have a much more diversified export structure, which brings significant value added to the domestic economy. Third,
we find that there exists heterogeneity in the extent that the Nordic countries are sensitive to
external shocks. This is, among others, due to their differences in their terms of trade volatility and varying concentration of exports to a few exporting firms and products.
Previous studies suggest that Nordic economies are particularly vulnerable to external shocks
due to their trade linkages and financial openness. For example, Vitek (2013) studies the influence of external macroeconomic and financial shocks to Nordic economies in a structural macro model and suggests that most of the cyclical output variation is driven by external
factors. Similarly, Gulan et al. (2013) attribute most of the fall in Finnish economic activity
during the recent economic and financial crisis to a lack of external demand and external financial stress. However, this literature which relies on historical decompositions of macroeconomic fluctuations, does not address the potential structural factors (industrial and export
products) that impose risks on economic activity in the future and that may vary significantly
across countries. We aim to complement this literature.
The rest of this paper is constructed as follows. Section 2 discusses the openness of Nordic
economies based on various indicators, including international trade, foreign direct investment and the significance of multinational enterprises. Section 3 presents indicators on specialisation. Section 4 discusses vulnerability and exposure to external shocks. Section 5 concludes.
4
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ETLA Raportit – ETLA Reports
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In this section, we first study the openness of the Nordic economies in terms of international trade.
2Openness
Second, we
look at foreign direct investment statistics. Finally, we discuss openness in terms of
multinational enterprises and their role in domestic economic activity. During our analysis, we keep
In this section, we first study the openness of the Nordic economies in terms of internationGermany alastrade.
a reference
whenever
meaningful.
helpsFinally,
us to understand
the particular
Second, country
we look at
foreign direct
investmentThis
statistics.
we discuss openness
characteristics
of Nordic
countries
in contrast
a large
open economy.
in terms
of multinational
enterprises
andtotheir
role but
in domestic
economic activity. During
our analysis, we keep Germany as a reference country whenever meaningful. This helps us to
Tradecountries in contrast to a large but open
understand the particular characteristics 2.1
of Nordic
economy.
A common measure of a country’s openness is the sum of the value of its exports and imports
divided by its gross domestic product, or trade openness in short. It is a measure of inter2.1Trade
connectedness and reflects the importance of both exports and imports for the domestic economy.
Figure 1 shows
trademeasure
openness
in the Nordic
countries
andofin
number
other and
OECD
economies
A common
of a country’s
openness
is the sum
thea value
of itsofexports
imports
2
for comparison.
consistent
with or
thetrade
conventional
the Nordic
countries are
divided byItitsshows,
gross domestic
product,
openness inwisdom,
short. It isthat
a measure
of inter-connectedness
and
reflects
the
importance
of
both
exports
and
imports
for
the
domestic
economore engaged in international trade than the United States or most of the large economies in the
my. Figure 1 shows trade openness in the Nordic countries and in a number of other OECD
euro area. The combined ratio of 1imports and exports is between 68 per cent of GDP in Norway and
economies for comparison. It shows, consistent with the conventional wisdom, that the Nor97 per cent
GDP inare
Iceland.
Yet, thein figure
also suggests
that
Nordic
countries
arethe
not
dicofcountries
more engaged
international
trade than
thethe
United
States
or most of
particularly
open
when compared
to other
small economies.
For instance,
trade
comprises
large
economies
in the euro area.
The combined
ratio of imports
and exports
is between
68 pera much
cent
of
GDP
in
Norway
and
97
per
cent
of
GDP
in
Iceland.
Yet,
the
figure
also
suggests
that Trade
larger share of economic activity in countries such as the Netherlands, Belgium and Ireland.
the Nordic countries are not particularly open when compared to other small economies. For
openness in Germany also exceeds that of Finland and Norway, even though it is a much larger
instance, trade comprises a much larger share of economic activity in countries such as the
economy.Netherlands, Belgium and Ireland. Trade openness in Germany also exceeds that of Finland
and Norway, even though it is a much larger economy.
Figure 1
Trade
in goods
and services,
% of
GDP,
2009 % of GDP, 2009
Figure
1: Trade
in goods
and
services,
% 200
150
100
50
0
Note: Trade is measured as gross imports plus gross exports. *EA12 is an arithmetic average for the Euro Area.
Note: TradeSource:
is measured
as gross imports plus gross exports. *EA12 is an arithmetic average for the Euro Area.
OECD.
Source: OECD.
1
For consistency we choose to present our figures for 2009. While 2009 was a year associated with significant turbulence in international trade, it does not affect the ranking of countries to any significant degree.
However, we cannot draw too strong conclusions about each country solely on the basis of its trade
openness. In particular, gross trade figures do not include information on the domestic value added
2
For consistency we choose to present our figures for 2009. While 2009 was a year associated with significant
turbulence in international trade, it does not affect the ranking of countries to any significant degree.
Openness, Specialisation and Vulnerability of the Nordic Countries
5
However, we cannot draw too strong conclusions about each country solely on the basis of its
trade openness. In particular, gross trade figures do not include information on the domestic value added content in exports. In reality,4domestic enterprises use imports as inputs in
the production of their export products, but they are also used in re-exports thus inflating the
trade figures. Consequently, gross trade data may bias any interpretation about each country’s
the importance
of international
for the domestic
economy
and, as a con-of their
content inopenness
exports.and
In reality,
domestic
enterprises trade
use imports
as inputs
in the production
sequence,
the
vulnerability
of
the
domestic
economy
to
external
shocks.
export products, but they are also used in re-exports thus inflating the trade figures. Consequently,
gross tradeOne
data
may bias any interpretation about each country’s openness and the importance of
way around this problem is to look at the value added trade figures, which abstract from
international
trade for
the domestic
economy
as a consequence,
the vulnerability
of rethe
the foreign
intermediate
inputs
employedand,
in producing
domestic exports,
as suggested by
2
cent literature.
Figure 2shocks.
shows the domestic value added embodied in foreign final demand
domestic economy
to external
or, in other words, the value added exports as estimated by the OECD. We find that exports account forthis
between
24 percent
and 35atper
of domestic
value added
in the
Nordic
countries,
One way around
problem
is to look
thecent
value
added trade
figures,
which
abstract
from the
implying
that
trade
does
contribute
significantly
to
domestic
value
added.
The
Nordic
counforeign intermediate inputs employed in producing domestic exports, as suggested by recent
tries fall between large economies, such as the United States and France where international
Figure
2 shows
added
embodied
in foreign
finalsuch
demand
or, in other
literature.3trade
accounts
for 9 the
anddomestic
16 per centvalue
of GDP
respectively,
and small
economies
as Ireland
words, theand
value
added
exports
asaccount
estimated
byand
the50OECD.
findrespectively.
that exports account for
Estonia
where
exports
for 40
per centWe
of GDP
between 24 percent and 35 per cent of domestic value added in the Nordic countries, implying that
the value significantly
added figures also
convey information
that isThe
not Nordic
clear from
gross trade
trade doesBut
contribute
to domestic
value added.
countries
fallfigures.
between large
First, the Nordic countries are in a different order in Figures 1 and 2. Specifically, exports coneconomies,
such
thesignificant
United States
France where
international
accounts
tain
the as
most
sourceand
of domestic
value added
in Norwaytrade
despite
the factfor
that9 itand 16 per
cent of GDP
and
small
economies
such as Ireland
and Estonia
where
exports
was respectively,
ranked the least
open
based
on trade openness.
The significant
difference
between
the account
for 40 and 50 per cent of GDP respectively.
Figure 2
Value added
% of GDP, 2009
Figureexports,
2: Value-Added
Exports, % of GDP, 2009
% 60
50
40
30
20
10
0
Note: Domestic value added embodied in foreign final demand. *EA12 arithmetic average.
Note: Domestic
value
Source:
OECD.added embodied in foreign final demand. *EA12 arithmetic average
Source: OECD.
See e.g. Hummels et al. 2001, Daudin et al. 2011, Johnsson and Noguera 2012, and Koopman et al. 2014 for a macro perspective
But the value
added figures also convey information that is not clear from gross trade figures. First,
and Ali-Yrkkö et al. 2011 for a micro and case-study perspective. These papers also consider the difficulties related to measuring the
value added of exports.
the Nordicdomestic
countries
are in a different order in Figures 1 and 2. Specifically, exports contain the
most significant source of domestic value added in Norway despite the fact that it was ranked the
least open based on trade openness. The significant difference between the gross figures and value
added figures reflects the fact that Norway exports products that have a high degree of domestic
value added, such as crude oil, natural gas and fish (see Section 3 below). Consequently, the gross
2
6
ETLA Raportit – ETLA Reports
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5
gross
figures and
added
reflects
the fact that
Norway
exports products
have a
Nordic
countries.
Thisvalue
reflects
thefigures
fact that
a significant
portion
of international
tradethat
in these
high
degree
of
domestic
value
added,
such
as
crude
oil,
natural
gas
and
fish
(see
Section
becountries consists of re-exports or arbitrage trade that involves little domestic value added.3Hence,
low). Consequently, the gross figures potentially underestimate the significance of international
the figure suggests that the Nordic countries are comparable to other small European economies
trade to Norway’s economy. Second, we may observe that the Netherlands and Belgium now fall
wheninto
we the
consider
the linkages
ofNordic
cross border
activity.
same category
as the
countries.
This reflects the fact that a significant portion
of international trade in these countries consists of re-exports or arbitrage trade that involves
2.2 Foreign Direct Investment
little domestic value added. Hence, the figure suggests that the Nordic countries are comparable to
otherinvestment
small European
economies
when we consider
the linkages
of cross
border
activity.
Foreign
direct
measures
direct cross-border
linkages
in economic
activity
that
concern
longer lasting and more stable links between economies. FDI flows have the potential to transfers
technological and business know-how internationally and increase the markets for domestic
2.2
Foreign Direct Investment
producers as well as financing possibilities for smaller firms. FDI data provide a measure of
interdependence
thatinvestment
is not accounted
fordirect
in international
trade
flows. in economic activity that
Foreign direct
measures
cross-border
linkages
concern longer lasting and more stable links between economies. FDI flows have the potential
Figure 3 shows inward and outward FDI in the Nordic countries and other OECD economies. The
to transfers technological and business know-how internationally and increase the markets
sharefor
ofdomestic
FDI varies
significantly
the Nordic
countries.
The ratio
is the
highest
in Iceland,
producers
as wellbetween
as financing
possibilities
for smaller
firms.
FDI
data provide
a 4
evenmeasure
though itofhas
the
highest
level
of
restrictions
on
FDI
and
ownerships
among
these
countries.
interdependence that is not accounted for in international trade flows.
In contrast, the FDI share is the lowest in Finland and Norway, which have fewer restrictions on
capital
movements
FDI.
Furthermore,
has attracted
more
inward
than
it has
Figure
3 shows and
inward
and
outward FDIIceland
in the Nordic
countries
and
other FDI
OECD
economies.
The FDI,
sharewhile
of FDIthevaries
significantly
between
theNordic
Nordiccountries,
countries.especially
The ratio Denmark
is the highest
outward
opposite
is true for
the other
and
in
Iceland,
even
though
it
has
the
highest
level
of
restrictions
on
FDI
and
ownerships
among
Finland. The high FDI-to-GDP ratios in Belgium, Ireland and the Netherlands are largely due to
thesetax-induced
countries.3 behaviour
In contrast,bythe
FDI share isfirms
the lowest
in Finland
and Norway,
specific
multinational
and due
to low restrictions
on which
foreignhave
investment and ownership restrictions.
Figure 3
Foreign direct investment stocks in 2012, % of GDP
Figure 3: Foreign Direct Investment Stocks in 2012, % of GDP
Inward
Outward
250
200
150
100
50
0
Note: Ordered by inward foreign direct investment. Nordic countries highlighted in red.
Note: Ordered by inward foreign direct investment. Nordic countries highlighted in red.
Source: UNCTAD.
Source: UNCTAD.
4
3
See OECD FDI index at www.oecd.org/investment/index. This is only in part explained by the recent crisis; see Gwartney et al. (2013).
See OECD FDI index at www.oecd.org/investment/index. This is only in part explained by the recent crisis; see
Gwartney et al (2013).
7
Openness, Specialisation and Vulnerability of the Nordic Countries
fewer restrictions on capital movements and FDI. Furthermore, Iceland has attracted more inward FDI than it has outward FDI, while the opposite is true for the other Nordic countries,
especially Denmark and Finland. The high FDI-to-GDP ratios in Belgium, Ireland and the
Netherlands are largely due to specific tax-induced behaviour by multinational firms and due
to low restrictions on foreign investment and ownership restrictions.
6
Figure 4 shows the significant increase in FDI in the Nordic countries during the last three
decades,
whichthe
is part
of a global
trendininFDI
FDIinflows.
The increase
hasduring
been particularly
draFigure
4 shows
significant
increase
the Nordic
countries
the last three
decades,
matic in Iceland since 2003. This is partly explained by its size – its economy is so small that
which is part of a global trend in FDI flows. The increase has been particularly dramatic in Iceland
even a single large investment has a very strong impact on the aggregate flows. Another pecusince 2003. This is partly explained by its size – its economy is so small that even a single large
liarity is the inward FDI stock in Denmark which increased very rapidly in the late 1990s, but
investment
has aflat
very
strong
impact
on GDP.
the aggregate
flows.
Another
peculiarity
is the
has since been
with
respect
to the
Overall, the
Nordic
countries’
openness
ininward
terms FDI
stock
in
Denmark
which
increased
very
rapidly
in
the
late
1990s,
but
has
since
been
flat
with
of inward and outward FDI stocks does not stand out in Europe even if we include larger econrespect
omies.to the GDP. Overall, the Nordic countries’ openness in terms of inward and outward FDI
stocks does not stand out in Europe even if we include larger economies.
Figure
4a:4a
Outward
FDI,FDI,
% of%GDP
Figure
Outward
of GDP
Figure
Inward
FDI,
% GDP
of GDP
Figure
4b 4b:
Inward
FDI,
% of
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
1980 1985 1990 1995 2000 2005 2010
1980 1985 1990 1995 2000 2005 2010
Denmark
Finland
Germany
Denmark
Finland
Germany
Iceland
Norway
Sweden
Iceland
Norway
Sweden
Source: UNCTAD.
Source: UNCTAD.
2.3
Multinational enterprises
2.3 Multinational enterprises
Another angle to look at a country’s openness is the interconnectedness of firms operating in each
Anotherorangle
to look at a country’s
openness
is5the
interconnectedness
of firms
operating
Cross-border
activity and
world
trade areinto a
country,
the multinational
enterprises
(MNE).
4
each country,
or the
multinational
enterprises
Cross-border
activityofand
world trade
significant
degree
intra-firm
trade. In
particular,(MNE).
a relatively
limited number
multinational
are
to
a
significant
degree
intra-firm
trade.
In
particular,
a
relatively
limited
number
mulenterprises (MNEs) account for most of world trade. But studying MNEs also capturesofinformation
tinational enterprises (MNEs) account for most of world trade. But studying MNEs also capabout interconnectedness that might not be captured either by trade flows or by foreign direct
tures information about interconnectedness that might not be captured either by trade flows
investment data. For example, a domestic MNE that has activities abroad may benefit from
or by foreign direct investment data. For example, a domestic MNE that has activities abroad
resources
thatfrom
are not
domestically
and is clearly
in a and
different
position
in terms poof shocks
may benefit
resources
that areavailable
not domestically
available
is clearly
in a different
tosition
the domestic
economy
than
fully
domestic
enterprises
and
vice
versa.
in terms of shocks to the domestic economy than fully domestic enterprises and vice
versa.
Figure 5 shows the inward activity of foreign MNEs in employment and value added as a
percentage
domestic
employment
andwevalue
addedbutinnevertheless
the Nordic
countries
and Germany.
In
These dataof
aretotal
of course
correlated with
the FDI stocks that
just reviewed,
they do
offer an additional
view.
manufacturing, these shares are the largest in Sweden, where foreign MNEs account for 44 per cent
of value added and 34 per cent of manufacturing employment. In Norway, the shares are 32 and 23
per cent, respectively. Denmark and Finland form a group of their own with Germany in terms of
the share in value added. In services the importance of foreign MNEs is different. Specifically,
MNEs have the largest share of labour and value added in Denmark, followed by Sweden, Norway
4
8
ETLA Raportit – ETLA Reports
No 21
Figure 5 shows the inward activity of foreign MNEs in employment and value added as a percentage of total domestic employment and value added in the Nordic countries and Germany.
In manufacturing, these shares are the largest in Sweden, where foreign MNEs account for 44
per cent of value added and 34 per cent of manufacturing employment. In Norway, the shares
are 32 and 23 per cent, respectively. Denmark and Finland form a group of their own with Germany in terms of the share in value added. In services the importance of foreign MNEs is different. Specifically, MNEs have the largest share of labour and value added in Denmark, fol7
lowed by Sweden, Norway and Finland. Overall,
the inward activity of foreign MNEs is relatively similar in Germany as in the Nordic countries in terms of value added.
and Finland. Overall, the inward activity of foreign MNEs is relatively similar in Germany as in the
Nordic countries in terms of value added.
Figure 5a Inward activity of MNEs in manuFigure 5b Inward activity of MNEs in
Figure 5a:
Inwardin
activity
in
Inward in
activity
in
facturing
2010,of%MNEs
of total
Figure 5b:
services
2010,of%MNEs
of total
services in 2010, % of total
manufacturing in 2010, % of total
50
50
40
40
30
30
20
20
10
10
0
0
Denmark Finland
Norway
Sweden Germany
Number of persons employed
Value added at factor cost
Denmark Finland
Norway
Sweden Germany
Number of persons employed
Value added at factor cost
Note:
data for
Denmark in
in 2009.
2009.
Note: No
No data
for Iceland.
Iceland. Denmark
Source:
OECD.
Source: OECD.
In contrast, Figure 7 shows the outward activity of domestic multinationals in manufacturing and
total
businessFigure
sector.6Manufacturing
MNEs activity
have a significant
share
of their employment
abroad.
In contrast,
shows the outward
of domestic
multinationals
in manufacturing
This
is
most
significant
in
Finland
where
the
ratio
of
domestic
MNEs’
employment
abroad
to
and total business sector. Manufacturing MNEs have a significant share of their employment
domestic
manufacturing
employment
85 perwhere
cent inthe
2010.
is about
70 peremployment
cent in
abroad. This
is most significant
in was
Finland
ratioThe
of ratio
domestic
MNEs’
Denmark
Sweden,
but much loweremployment
in Norway and
abroad toand
domestic
manufacturing
wasGermany.
85 per cent in 2010. The ratio is about 70
per cent in Denmark and Sweden, but much lower in Norway and Germany.
In total business sector, foreign employment is less significant than in manufacturing. Sweden has
the strongest service sector firms (retail trade etc.) that lift the country to the first position in terms
In total business sector, foreign employment is less significant than in manufacturing. Sweden
of foreign employment relative to domestic employment. With the exception of Norway, the Nordic
has the strongest service sector firms (retail trade etc.) that lift the country to the first position
countries are quite different from Germany in that the domestic MNEs have a larger share of their
in terms of foreign employment relative to domestic employment. With the exception of Nortotal activities abroad. This is natural due to their smaller size, but also reflects the extent that these
way, the Nordic countries are quite different from Germany in that the domestic MNEs have a
countries are specialised in particular tasks in the production chain.
larger share of their total activities abroad. This is natural due to their smaller size, but also reflects the extent that these countries are specialised in particular tasks in the production chain.
Table 1 shows which countries are the most important in terms of domestic MNEs’ employment abroad. In general, Germany, China and the United States stand out as the main destination countries along with Sweden for the other Nordic countries. Interestingly, Finnish MNEs
have the highest share of their labour in large transition and developing countries with Russia,
China, India and Brazil totalling almost 30 per cent of total foreign employment.
9
Openness, Specialisation and Vulnerability of the Nordic Countries
8
Figure 6 Outward activity of domestic multinationals, number of persons employed
Figure
activity
domesticemployment
multinationals,
7: Outward
abroad
perofdomestic
(%)number
in 2010of persons employed abroad per
domestic employment (%) in 2010
90
80
70
60
50
40
30
20
10
0
Denmark
Finland
Manufacturing
Norway
Sweden
Germany
Total business sector (B to S excl. O)
Note: Total
business
sector employment
is calculated
as total
less agriculture,
hunting,
forestry
and
fishing,
Note:
Total business
sector employment
is calculated
as employment
total employment
less agriculture,
hunting,
forestry
and
fishing, andgovernment
less general employment.
government employment.
to thetotal
OECD,
total employment
in general
government
and less general
According According
to the OECD,
employment
in general
government
as a as a
of the
labour
force in Germany
201110.6
was 10.6
per cent.
percentagepercentage
of the labour
force
in Germany
in 2011in was
per cent.
Source: OECD and own calculations.
Source: OECD and own calculations.
Table 1 shows which countries are the most important in terms of domestic MNEs’ employment
abroad. In general, Germany, China and the United States stand out as the main destination
Table 1 Domestic multinationals’ employment abroad, total business sector in 2010,
countries along with Sweden for the other Nordic countries. Interestingly, Finnish MNEs have the
% of total
highest share of their labour in large transition and developing countries with Russia, China, India
%Finland
%Sweden%Germany
%
and Brazil Denmark
totalling almost
30 per cent of%Norway
total foreign employment.
China 9.7Sweden
13.0Sweden
18.0USA 16.0USA 13.0
Table 1: USA
Domestic Multinationals’
Employment Abroad,7.5Germany
Total Business Sector
in 2010, % of total
7.7Russia9.8USA
8.7UK
6.6
Denmark Germany
% 7.7China
Finland
%8.8Denmark
Norway
%6.7China
Sweden
%
Germany
6.1China
6.6 %
China
USA
Germany
Sweden
UK
Sweden
5.7France
5.8
9.7 6.9Germany
Sweden
13.08.4UK
Sweden
18.05.6France
USA
16.0
USA
13.0
Russia
9.86.5Germany
USA
7.55.0Denmark
Germany
8.7
UK
UK7.7 6.5India
4.8Poland
5.06.6
Poland
5.9USA
5.7Poland
3.8UK
4.7Brazil
4.46.6
7.7 China
8.8 Denmark
6.7 China
6.1 China
6.9 3.7Poland
Germany
8.44.8India
UK
5.63.7Norway
France
5.7
France
India
4.4Czech
Rep.
4.45.8
Russia3.4Estonia
4.6OFC
3.4Poland
4.3Austria
3.95.0
6.5 India
6.5 Germany
5.0 Denmark
4.8 Poland
Poland Norway
5.9 3.0Brazil
USA
5.73.4Thailand
Poland
3.83.0Finland
UK
4.7
Brazil
3.9Spain
3.64.4
France
3.0UK
2.9China
2.9Spain
3.4Italy
India
3.7 Poland
4.8 India
3.7 Norway
4.4 Czech Republic 3.14.4
Russia Note: OFC3.4
Estoniafinancial centres.
4.6 OFC
3.4 Poland
4.3 Austria
3.9
= Offshore
own calculations.
Norway Source: OECD
3.0 and
Brazil
3.4 Thailand
3.0 Finland
3.9 Spain
3.6
France
3.0 UK
2.9 China
2.9 Spain
3.4 Italy
3.1
Note: OFC = Offshore financial centres.
Source: OECD
Basedand
onown
the calculations.
international comparison, we conclude that the Nordic countries are open econ-
omies. They are much more dependent on international trade than large euro area countries,
smaller
countriescomparison,
such as Greece
or Portugal.
termscountries
of aggregate
trade economies.
figures, the
Based onorthe
international
we conclude
thatBut
the in
Nordic
are open
do not on
appear
particularly
open
when
compared
other small
They areNordic
much countries
more dependent
international
trade
than
large
euro areatocountries,
orcountries
smaller in
countries such as Greece or Portugal. But in terms of aggregate trade figures, the Nordic countries
10
ETLA Raportit – ETLA Reports
No 21
Europe. Furthermore, there is no clear ordering of the Nordic countries in terms of their openness using the different indicators. To understand what lies below the surface, we next look at
the export structures of these countries.
3Specialisation
This section studies the degree of specialisation of export industries in the Nordic countries.
We first discuss the main export goods and industries for each country. Second, we assess how
Nordic economies compare to world markets. Finally, we analyse the significance of the specialised sectors in value added terms.
3.1Exports
Table 2 shows the Nordic countries’ and Germany’s top-five export products in 2012 using
the three-digit level of SITC Rev 3 with 255 product categories. Despite the Nordic countries’
highly educated labour force, the exports of raw materials and low-tech processed products
comprise a relatively large share of their exports. Norway and Iceland are the clearest examples of this. In Norway, crude petroleum oil and natural gas add up to a combined share of 61
per cent and fresh fish an additional 5 per cent of total goods exports. In Iceland, 37 per cent
of exports are aluminium and 35 per cent are fresh or lightly processed fish.
Table 2
Top-5 export goods, % of gross exports, 2012
Denmark
Medicaments (incl. veterinary medicaments)
Petroleum oils or bituminous minerals > 70 % oil
Petroleum oils, oils from bitumin. materials, crude
Other meat and edible meat offal
Medicinal and pharmaceutical products, excluding 542
Finland
Paper and paperboard
Petroleum oils or bituminous minerals > 70 % oil
Flat-rolled products of alloy steel
Telecommunication equipment, n.e.s.; & parts, n.e.s.
Other machinery for particular industries, n.e.s.
Iceland
Aluminium
Fish, fresh (live or dead), chilled or frozen
Fish, dried, salted or in brine; smoked fish
Feeding stuff for animals (no unmilled cereals)
Pig iron & spiegeleisen, sponge iron, powder & granu
Note: Three-digit level of SITC Rev 3.
Source: UNCTAD, own calculations.
%Norway
8.1
4.7
4.6
3.7
2.8
Petroleum oils, oils from bitumin. materials, crude
Natural gas, whether or not liquefied
Petroleum oils or bituminous minerals > 70 % oil
Fish, fresh (live or dead), chilled or frozen
Aluminium
%Sweden
12.5
10.7
4.5
2.7
2.4
%
37.1
27.5
7.2
3.6
3.4
Petroleum oils or bituminous minerals > 70 % oil
Paper and paperboard
Telecommunication equipment, n.e.s.; & parts, n.e.s.
Parts & accessories of vehicles
Medicaments (incl. veterinary medicaments)
Germany Motor vehicles for the transport of persons
Parts & accessories of vehicles
Medicaments (incl. veterinary medicaments)
Aircraft & associated equipment; spacecraft, etc.
Apparatus for electrical circuits; board, panels
%
33.9
27.0
5.6
4.7
2.6
%
7.8
5.7
4.3
3.8
3.7
%
10.3
3.8
3.2
3.0
2.2
10
Table 2
Top-5 Export goods, % of Gross Exports, 2012
11
Openness, Specialisation and Vulnerability of the Nordic Countries
%
Norway
%
(incl. veterinary medicaments)
8.1 Petroleum oils, oils from bitumin. materials, crude
33.9
s or bituminous minerals > 70 % oil
4.7 Natural gas, whether or not liquefied
27.0
s, oils from bitumin. materials, crude
4.6
Petroleum
oils
or
bituminous
minerals
>
70
%
oil
5.6
In the other Nordic countries the pattern is less marked. In Finland, almost
20 per cent of exnd edible meat offal
3.7
Fish,
fresh
(live
or
dead),
chilled
or
frozen
4.7
ports are forest industry products, of which 12.5 percentage points are paper and paperboard.
d pharmaceutical products, excluding 542
2.8 Aluminium
2.6
Also, petroleum oils or bituminous minerals, which are mainly manufactured from import%
%
Sweden
ed crude oil, have become one of the main export products. The formerly important mobile
perboard
12.5 Petroleum oils or bituminous minerals > 70 % oil
7.8
phone exports10.7
havePaper
all but
ended, but there remains significant research
and development
s or bituminous minerals > 70 % oil
and paperboard
5.7
(R&D) activity 4.5
in this
field. Denmarkequipment,
and Sweden
a more
structure of exoducts of alloy steel
Telecommunication
n.e.s.;have
& parts,
n.e.s. heterogeneous
4.3
port
goods
and
no
single
product
comprises
such
a
large
share
of
total
exports,
but petroleum
ication equipment, n.e.s.; & parts, n.e.s.
2.7 Parts & accessories of vehicles
3.8
and products thereof
do constitute
significant
share of exports also in3.7these countries. A sigery for particular industries, n.e.s.
2.4 Medicaments
(incl.aveterinary
medicaments)
nificant share %
of Germany’s
Germanyexports consists of cars, but otherwise no%single product category
37.1role.
Motor vehicles for the transport of persons
10.3
plays a dominant
ve or dead), chilled or frozen
27.5 Parts & accessories of vehicles
3.8
alted or in brine; smoked fish We may note already
7.2 Medicaments
(incl.
veterinary
medicaments)
3.2
from this table that there are significant differences in the extent that the
for animals (no unmilled cereals)
3.6 Aircraft & associated equipment; spacecraft, etc.
3.0
Nordic countries
have concentrated on producing only in a few product
groups. In particular,
iegeleisen, sponge iron, powder & granu
3.4 Apparatus for electrical circuits; board, panels
2.2
the top-10 export product groups account for 89 per cent of exports in Iceland, 80 per cent in
Norway, 44 per cent in Finland, 36 per cent in Sweden and 34 per cent in Denmark. In Germany, the top-10
exporttoproduct
groups
accountexports
for 31 per
cent of total
exports.
ot of manufacturing production
has moved
China in
particular,
of services
have
-digit level of SITC Rev 3. Source: UNCTAD, own calculations.
creasingly important for many countries. In 2012, Sweden accounted for 1.7 per cent of
While a lot of manufacturing production has moved to China in particular, exports of servicexports of services, Denmark
1.5 per
cent, Norway
for 1.0
cent,
Finland
0.7Sweden accounted for 1.7
es havefor
become
increasingly
important
for per
many
countries.
In for
2012,
nd Iceland for 0.1 per cent.
After
the
turn
of
the
century,
the
shares
of
Finland
and
Sweden
per cent of the global exports of services, Denmark for 1.5 per cent, Norway for 1.0 per cent,
Finland has
for 0.7
per cent
and Iceland
for 0.1 per
cent. After
the turn of the century, the shares
slightly, while that of Norway
declined
a little.
Meanwhile,
all Nordic
countries
Finland have
and Sweden
have risen
slightly,
whileinthat
of Norway
has declined a little. Meany Denmark, Finland and ofSweden)
experienced
declining
shares
world
merchandise
while, all Nordic countries (especially Denmark, Finland and Sweden) have experienced declining shares in world merchandise exports.5
o assess the characteristics of Nordic countries more systematically, we next compare
In order to assess the characteristics of Nordic countries more systematically, we next compare
orld markers. We first look at the diversification index of export goods. It measures to
them to world markers. We first look at the diversification index of export goods. It measures
nt the structure of exports
an extent
individual
countryofdiffers
from
export structure
of thefrom the export structo of
what
the structure
exports
of anthe
individual
country differs
e index is calculated as ture of the world. The index is calculated as
�� =
∑����� ��� �
�
,
where
hij exports
is the share
of good ij in
theh total
exports of country j and hi is the share of the good
s the share of good i in the
total
of country
and
i is the share of the good in total
6
in
total
world
exports.
Thus,
the
index
takes
values from zero to one, where a value closer to
orts.7 Thus, the index takes
values
from
zero
to
one,
where
a
value
closer to one indicates
one indicates a bigger difference from the world total.
ifference from the world total.
Figure 7 shows the diversification index of export goods for Nordic countries and Germany
hows the diversificationasindex
of export
goods for7 Norway
Nordic and
countries
Germany
as index values, implying that
calculated
by UNCTAD.
Icelandand
score
the highest
8
by UNCTAD. Norway
Iceland
scoreinthethese
highest
indexdiffers
values,
implying that
theand
export
structure
countries
significantly
fromthe
the world average. Finland
Denmark
rank next,
while
Germany
are closest
ucture in these countries and
differs
significantly
from
theSweden
world and
average.
Finland
and to the structure of global exAs we can see,
the countries’
structures
relative
to theAs
rest of the world have been
rank next, while Swedenports.
and Germany
are closest
to theexport
structure
of global
exports.
relatively
stable
over
the
past
almost
two
decades.
The
largest
relative
declines in the index
e, the countries’ export structures relative to the rest of the world have been relatively
have occurred in Sweden and Denmark, while there has been a relative increase in Germany.
NCTAD.
is a modified Finger-Kreinin5 (1979) measure of similarity in trade.
Data by UNCTAD.
parison relative to EU countries’
export structures, see Kaitila (2013).
6
7
The index is a modified Finger-Kreinin (1979) measure of similarity in trade.
For a comparison relative to EU countries’ export structures, see Kaitila (2013).
11
12
ETLA Raportit – ETLA Reports
11
No 21
stable over the past almost two decades. The largest relative declines in the index have occurred in
11
anddecades.
Denmark,
there
has been
a relative
increase
Germany.
pastSweden
almost two
Thewhile
largest
relative
declines
in the index
haveinoccurred
in
Figure
7 been
Diversification
index ofin
export
goods
enmark, while there
has
a relative
Germany.
Figureincrease
8: Diversification
index of export goods
stable over the past almost two decades. The largest relative declines in the index have occurred in
Sweden
and Denmark, index
while of
there
has been
Figure
export
goodsa relative increase in Germany.
0.908: Diversification
0.90
0.70
0.80
0.60
0.70
0.50
0.60
0.40
0.50
0.30
0.40
0.30
0.20
1995 0.20
995
.
Figure 8: Diversification index of export goods
0.80
2000
Denmark
Finland
2000
1995
Denmark
Source: UNCTAD.
Iceland
Source: UNCTAD.
2005
2005
Finland
2000
Norway
Denmark
2010
Iceland
Finland
Sweden
Iceland
2010
2005
Norway
Germany
Norway
Sweden
Sweden
2010
Germany
Germany
Source: UNCTAD.
Next,
we look
at
the
concentration
of each
country’s
export
goods.
The
degree
of market
at the
concentration
of
each
export
goods.
Thecountry’s
degree
of
market
Next,
we
lookcountry’s
at the
the concentration
concentration
of each
each
export
goods.The
Thedegree
degreeofofmarket
marketconNext,
we
look
at
of
country’s
export
goods.
concentration
canHerfindahl-Hirschmann
be assessed
by
the
Herfindahl-Hirschmann
(HH)
index.
The
index
isis given
by
an be
assessed concentration
by
the
(HH)
index.
The
index
is
given
by
be assessed
by Herfindahl-Hirschmann
the Herfindahl-Hirschmann
(HH)
index.
index
given
centration cancan
be assessed
by the
(HH)
index.
TheThe
index
is given
by by
��� =
�
���
�
�∑�
� ���
����
��
�
����
�
��
�
�
�� �
�
� ��
�∑�
� ���� ��
����∑���
��
, � =��� =
��
�� �
�
�
��������
,
�
,
�
of exports
exports
for
country
and with
goodni,i,the
andnumber
� = ∑ of ��� with n the
where
xxijij is the jvalue
where
of
and
good
and
the number
num- of
∑����jjgood
value
of exports
for value
country
and good
andfor
��country
=j and
�
where
xij is the
of exports
fori, country
�� =� ∑�������
��� with n the number of
�� i, and
ber
of
individual
goods.
The
index
takes
on
values
from
zero
to
unity,
where
unity
denotes
individual goods. The index takes on values from zero to unity, where unity denotes concentration
ds. The
index takes
on valuesindex
from
zero
to
where
individual
goods.
onunity,
values
fromunity
zerodenotes
to unity,concentration
where unity denotes concentration
concentration
onlytakes
a single
good.
to
only aThe
singletogood.
good.
to only a single good.
Figure 98 shows
shows the
the HH
HHindex
indexasascalculated
calculatedby
byUNCTAD.
UNCTAD.Unsurprisingly,
Unsurprisingly, Iceland
Iceland and
andNorway
Nor- are
Figure
theFigure
HH index
as
by
UNCTAD.
Unsurprisingly,
Iceland
and Norway
way
are
group
of as
their
own
as countries
that
have
very
concentrated
export and
structures.
9 shows
theinHH
index
by have
UNCTAD.
Unsurprisingly,
Iceland
Norway are
in
acalculated
group
ofa their
own
ascalculated
countries
that
very
concentrated
exportare
structures.
Denmark,
eir own as countries
that
have
very
concentrated
export
structures.
Denmark,
Denmark,
Sweden
and
Germany
are
together
at
about
the
same
level
in
terms
of
their
export
are together
at about
same level in export
terms ofstructures.
their exportDenmark,
good
in a group Sweden
of theirand
ownGermany
as countries
that have
verytheconcentrated
good
concentration
despite
the
fact
that
these
countries
differ
considerably
in
their
size. In we
ermany are together
at
about
the
same
level
in
terms
of
their
export
good
concentration
despite
the fact
that
these
countries
differinconsiderably
in their
size.good
In contrast,
Sweden and
Germany
are
together
at
about
the
same
level
terms
of
their
export
contrast, we
may observe
that
Finland has in
had
a more
export
than its
espite the fact that
countries
differhas
considerably
their
size.concentrated
In contrast,
wethanstructure
may these
observe
that Finland
had a more concentrated
export
structure
its neighbours, but that
concentration
despite
the
factthere
that has
these
countries
differdecline
considerably
in their
size.
In contrast,
neighbours,
but
that
been
a considerable
in the concentration
of Finnish
ex- we
at Finland has had
more
concentrated
export
structure
than its neighbours,
butexports
that during the last fifteen
thereahas
been
a considerable
decline
in the concentration
of Finnish
ports
the last
similar, albeitexport
more moderate
hasneighbours,
also occurredbut that
may observe
thatduring
Finland
has fifteen
had a years.
more Aconcentrated
structuredecline
than its
a considerable decline
the concentration
of Finnish
exports
the lastinfifteen
years.
Ain
similar,
albeit more moderate
decline
has during
also occurred
Sweden.
in
Sweden.
there has been a considerable decline in the concentration of Finnish exports during the last fifteen
r, albeit more moderate decline has also occurred in Sweden.
years. A similar,
albeit
more
moderate
decline
also occurred
inproduction
Sweden. and exports than
Intuitively,
small
countries
are more
likelyhas
to specialise
in their
large countries. However, the Nordic countries tend to represent the extremes of this general tendency. This can be seen from Figure 9 which plots the HH index and population in the
EU27 countries, Iceland, Norway and Switzerland. Especially Denmark and Sweden seem to
be less specialised than small countries on average, while Iceland and Norway are much more
specialised than the other countries.
13
Openness, Specialisation and Vulnerability of the Nordic Countries
12
12
Figure 8 Figure
Herfindahl-Hirschmann
index of index
export good
concentration
9: Herfindahl-Hirschmann
Figure 9: Herfindahl-Hirschmann
index of
of export
exportgood
goodconcentration
concentration
0.50
0.45
0.40
0.50
0.45
0.40
0.35
0.35 0.30
0.30 0.25
0.25 0.20
0.20 0.15
0.15 0.10
0.10 0.05
0.05
0.00
1995
2000
0.00
1995
Denmark
Source: UNCTAD.
Denmark
2005
Finland
Iceland
2000
Finland
Iceland
Norway
2005
Norway
2010
Sweden
Germany
2010
Sweden
Germany
Source: small
UNCTAD.
Intuitively,
countries are more likely to specialise in their production and exports than large
countries. However, the Nordic countries tend to represent the extremes of this general tendency.
This can
be seen
from Figure
10 which
plots
the HH index
and population
in the
countries,
Intuitively,
small
countries
are more
likely
to specialise
in their
production
andEU27
exports
than large
Iceland,
Norway
and
Switzerland.
Especially
Denmark
and
Sweden
seem
to
be
less
specialised
than
countries. However, the Nordic countries tend to represent the extremes of this general tendency.
smallbecountries
on average,
while
Iceland
are much
more specialised
the other
This can
seen from
Figure 10
which
plotsand
theNorway
HH index
and population
in thethan
EU27
countries,
countries.
Source: UNCTAD.
Iceland, Norway
and Switzerland. Especially Denmark and Sweden seem to be less specialised than
Figure 9 Herfindahl-Hirschmann index and population in 2012 in the EU27 countries,
small countries
onHerfindahl-Hirschmann
average,
Iceland
andand
Norway
are in
much
thanIceland,
the other
Figure
10:
population
2012more
in the specialised
EU27 countries,
Iceland,while
Norway
and index
Switzerland
Norway
and
Switzerland
countries.
0.50
Figure 10: Herfindahl-Hirschmann index and population in 2012 in the EU27 countries, Iceland,
0.45
IS
Norway and Switzerland
NO
0.50
0.45
HH index
0.40
HH index
0.35
0.30
0.40
0.35
IS CY
NO
EL
0.30
IE
0.25
0.20
CY
LT
CHEL
0.15
NL
IE FI
0.25 0.10
SE
LT
0.20 0.05LV CHDK
PT
0.15 0.00
0.10
DE
AT
FI0
SE
DK
Source:
UNCTAD.
Source:
UNCTAD.
LV
0.05
PT
AT
0.00
0
10
Source: UNCTAD.
10 NL
20
20
30
30
40
50
Population, millions
40
50
Population, millions
60
70
80
90
DE
60
70
80
90
13
14
ETLA Raportit – ETLA Reports
No 21
3.5 Revealed Comparative Advantage
3.2
Revealed Comparative Advantage
ently used indicator of countries’ specialisation is the revealed comparative advantage
Another frequently used indicator of countries’ specialisation is the revealed comparative ading Balassa (1965). It compares a country’s exports in a particular industry to a
vantage (RCA), following Balassa (1965). It compares a country’s exports in a particular inp’s total exportsdustry
in thetosame
industry.
More
specifically,
thesame
RCAindustry.
for industry
� is
a reference
group’s
total
exports in the
More specifically,
the RCA for
industry is calculated as
���� = �� / ∑� ��
,
��,� / ∑� ��,�
where xof
denotes domestic exports of industry i and X group’s
denotesexports
the reference
otes domestic exports
of group’s exports
i industry � and ��,� denotes the referencew,i
of
industry
i.
Consequently,
a
higher-than-average
export
share
in
a
specific
nsequently, a higher-than-average export share in a specific industry is reflected in an industry is reflected in an RCA figure above one and a lower than average export share is reflected in RCA
ove one and a lower than average export share is reflected in RCA below one.
below one.
ws the RCA in 28 industries for the Nordic countries and Germany.9 We rank the
Figure 10 shows the RCA in 28 industries for the Nordic countries and Germany.8 We rank the
heir RCA to illustrate
the by
structural
differences
in these countries.
For in these counindustries
their RCA
to illustrateand
thesimilarities
structural differences
and similarities
3 on the horizontal
refers to rank
the industry
the third-highest
in eachwith the third-highest
tries.axis
For example,
3 on the with
horizontal
axis refers toRCA
the industry
equently, the ordering
differs
across
countries.
RCA in each country. Consequently, the ordering
differs across countries.
14
RCA
marise the graph as follows. First, there exists an expected pattern in specialisation
Figure 10 RevealedFigure
Comparative
Advantage
(RCA)
11: Revealed
Comparative
Advantage
es. In particular, all the Nordic countries are highly specialised in some industries, as
CA figures that exceed
three. In the case of Iceland and Norway, these industries
3
, and mining and quarrying, while in Sweden and Finland they include wood and
manufacturing. In Denmark, food products constitute a highly specialised industry. In
any–albeit a much larger though open economy–has no single industry as specialised
2
c countries.
1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Rank of RCA Industry
Denmark
Finland
Iceland
Norway
Sweden
Germany
Note: Industries
rankedranked
by their
RCA.RCA.
ForFor
a full
listlistofofthe
A1ininthe
theAppendix.
Appendix.
Note: Industries
by their
a full
theindustries
industriesand
andrankings,
rankings, see Table
Table A1
TheThe
top-3
RCA
figures
are
Denmark
(4.2,
3.1,
2.2),
Finland
(11.3,
5.1,
1.8),
Iceland
(24.4,
7.4,
6.5),
Norway
(18.7,
5.7,
2.4),
and
top-3 RCA figures are Denmark (4.2, 3.1, 2.2), Finland (11.3, 5.1, 1.8), Iceland (24.4, 7.4, 6.5), Norway (18.7, 5.7, 2.4),
Sweden (7.1, 6.7, 4.3). Industries included (28 in total): Agriculture, hunting and forestry; Fishing; Mining and Quarrying;
and Sweden
(7.1, 6.7, 4.3). Industries included (28 in total): Agriculture, hunting and forestry; Fishing; Mining and
Manufacturing (Food and beverages; Tobacco; Textiles; Wearing apparel etc.; Leather etc.; Wood; Paper; Printing; Coke,
Quarrying;
Manufacturing
(Food
and beverages;
Tobacco;
Textiles;
Wearing
etc.; Leather
etc.; Wood;
Paper;
ref. petroleum prod. and
nuclear
fuel; Chemicals;
Rubber
and Plastics;
Otherapparel
non-metallic;
Basic metals,
Fabricated
Printing;
Coke,
ref.
petroleum
and nuclear
fuel; Chemicals;
Rubber machinery;
and Plastics;
Other machinery
non-metallic;
Basic
metal
prod.;
Machinery
andprod.
equipment;
Office, accounting
and computing
Electrical
and apRadio,metal
television
and
communication
equipment; Medical,
precision andand
optical
instruments;
Motor vehicles;
metals,paratus;
Fabricated
prod.;
Machinery
and equipment;
Office, accounting
computing
machinery;
Electrical
Otherand
transport;
Furniture,
manufacturing),
Electricity, gas
and water;Medical,
Real estate,
renting and
activities;
machinery
apparatus;
Radio,other
television
and communication
equipment;
precision
andbusiness
optical instruments;
Other community and personal services.
Motor Source:
vehicles;
Other transport; Furniture, other manufacturing), Electricity, gas and water; Real estate, renting and
OECD.
business activities; Other community and personal services.
Source:8 OECD
See Table A1 in the Appendix.
the Appendix.
Second, the RCA figures show a particular pattern in Norway and Iceland, which are specialised in
only a few sectors. In both countries there are four RCA industries, i.e., industries where the RCA
value exceeds unity. In contrast, Denmark, even though it is a small country, has an RCA in 16
industries. Thus, based on the RCA indicator, Denmark has a more diversified export structure than
Openness, Specialisation and Vulnerability of the Nordic Countries
15
We may summarise the graph as follows. First, there exists an expected pattern in specialisation across countries. In particular, all the Nordic countries are highly specialised in some industries, as reflected in RCA figures that exceed three. In the case of Iceland and Norway, these
industries include fishing, and mining and quarrying, while in Sweden and Finland they include wood and paper related manufacturing. In Denmark, food products constitute a highly
specialised industry. In contrast, Germany – albeit a much larger though open economy – has
no single industry as specialised as in the Nordic countries.
Second, the RCA figures show a particular pattern in Norway and Iceland, which are specialised in only a few sectors. In both countries there are four RCA industries, i.e., industries
where the RCA value exceeds unity. In contrast, Denmark, even though it is a small country,
has an RCA in 16 industries. Thus, based on the RCA indicator, Denmark has a more diversified export structure than any other Nordic country, or even Germany. Further, Finland and
Sweden, while they are highly specialised in paper and wood related production, are not solely reliant on these industries. This also reflects the structural similarities in businesses in Finland and Sweden.
3.3
Value added exports
Similar to the gross export figures, a potential caveat with traditional specialisation indicators is that they do not necessarily tell anything about each industry’s contribution to domestic value added. For example, it may well be that a particular industry has a revealed comparative advantage, but the industry is so small that it has a negligible effect on domestic value
added. This would be the case if a significant portion of the sector’s inputs were imported from
abroad, or if the sector’s overall role in international trade is very small. In the following, we
aim to address this caveat.
The first step is to look at value added across industries in total exports. Table 3 shows the value added embodied in foreign final demand by industries as calculated by the OECD. Above,
in Figure 2, we saw these data for the countries without the division into industries.
First, we note that manufacturing contributes the largest single share of domestic value added embodied in foreign final demand in all Nordic countries except Norway where mining industries are very dominant. Important value-added creating service industries are business
services, transport and telecommunication, but also wholesale and retail trade. Financial intermediation brought significant value added exports to Iceland still in 2009, but it is likely to
have lost some of its importance during the years that followed. In manufacturing, the most
significant sources of value added are wood and paper related manufacturing (in Finland and
Sweden), chemicals, machinery, and electrical equipment. Furthermore, basic metals and the
manufacturing of transport equipment bring significant value added especially in Sweden and
Germany.
Our second step is to look at the value added created in the industries in which each country
is specialised, i.e. in which it has a revealed comparative advantage. This essentially addresses
the question of how dependent the domestic economy is on its RCA industries. Unfortunately, there is little data on the value added exports based on the same industrial classification as
shown above for the RCA industries. Also, making inference based on Table 3 would not make
16
Table 3
ETLA Raportit – ETLA Reports
No 21
Value added exports by industry in 2009, % of GDP
DenmarkFinland Iceland Norway SwedenGermany
Agriculture, hunting, forestry and fishing
Mining and quarrying
0.9
0.6
3.2
0.6
0.7
0.2
1.50.20.716.90.60.1
Manufacturing
12.010.612.7 5.212.512.2
–Food products, beverages and tobacco
2.3
0.2
0.5
0.5
0.3
0.4
16 0.2
–Textiles, textile products, leather and footwear
0.1
0.2
0.0
0.1
0.1
–Wood, paper, paper products, printing and publishing 0.5
1.8
1.4
0.5
1.7
0.7
–Chemicals and non-metallic mineral products
2.0
5.4
0.9
2.5
2.4
10 2.8
each industry by the export share of its production. This yields a reasonable approximation of the
–Basic metals and fabricated metal products
0.9
1.2
0.5
0.8
2.1
1.9
value added exports to the extent that the value added content of exports is similar to the production
–Machinery and equipment, nec 1.9
1.8
0.2
1.1
2.0
2.5
sold domestically.
–
Electrical and optical equipment
2.12.43.60.41.41.6
–
Transport
equipment
Figure
12 shows
the cumulative value added exports0.30.40.20.31.31.7
by RCA industries, including the first n
–
Manufacturing nec; recycling 0.60.10.20.10.40.3
industries that have an RCA above one. It illustrates the importance of the industries in which the
countries
specialised
in. For example, the first two
combined
value
Electricity, are
gas and
water supply
0.5RCA industries’
0.6
0.6
0.7 added0.7
0.6
Construction
0.20.20.10.30.30.2
exports
is 6.1 per cent of Iceland’s GDP. The third-ranked
RCA industry raises this to 8.3 per cent.
Wholesale and retail trade; hotels and restaurants
2.8
2.0
2.2
2.9
3.7
2.5
The
figureand
shows,
consistent
with the previous analysis,
value added
a
Transport
storage,
post and telecommunication
5.9 that the
4.1
3.3 produced
3.4 by only
2.8
2.0
few
industries
is
significant
in
Norway
and
Iceland,
as
implied
by
the
steep
cumulative
value
added
Financial intermediation
0.90.94.01.31.00.9
curve.
Inservices
other countries, the value added of exports 3.64.56.03.47.35.6
is more evenly distributed across RCA
Business
Other services
industries,
as reflected in the slope of the curve that is0.91.00.20.71.21.0
much less steep and quite similar across
countries.
Total
28.624.132.434.529.924.7
This
is in contrast with the gross trade figures for the same industries (Figure 13). In particular,
Source: OECD. According to the OECD, “Value-Added embodied in Foreign Final Domestic Demand shows how
while
in terms
of gross
Finland
appears
be more
its RCA
industries, thisthrough
is
industries
export
value exports
both through
direct
final to
exports
anddependent
via indirecton
exports
of intermediates
othnot
directly supported
theconsumers
value added
figures. However,
comparingand
Figure
12 and Table
3, reflect
er countries
to foreign by
final
(households,
charities, by
government,
as investment).
They
how
industries
(upstream
a value-chain)
are connected
to consumers
in the
other
countries,
even where no diwe
may
also note
that the in
RCA
industries only
accounts for
a portion of
total
value added
rect trade foreign
relationship
TheThe
indicator
illustrates
therefore
the full upstream
impact
of final demand
in forembodied
finalexists.
demand.
service
industries
are significant
for all Nordic
countries,
as
eign markets to domestic output. It can most readily be interpreted as ‘exports of value-added’”.
can be seen from Table 3.
The gross exports of RCA industries overestimate the economies’ dependency on these industries
due to the import content. On the other hand, the value added exports underestimate it to the extent
justice for differences across countries due to its relatively aggregated classification.
other domestic industries supply the RCA industries with intermediate products.
Value Added Exports, % of GDP
Thus, we
opt to estimate the value added embodied in RCA industries’ exports by multiplying the value
9
Figure
12: Cumulative
Value Added
Exports
RCA of
industries
in 2007-2009,
% yields
of GDPa reasonable
added
created
by each industry
by the
exportbyshare
its production.
This
approximation of16the value added exports to the extent that the value added content of exports
is similar to the production sold domestically.
12
Figure 11 shows the cumulative value added exports by RCA industries, including the first n
8 an RCA above one. It illustrates the importance of the industries in which
industries that have
the countries are specialised in. For example, the first two RCA industries’ combined value
4
added exports is 6.1
per cent of Iceland’s GDP. The third-ranked RCA industry raises this to
8.3 per cent.
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16
The figure shows, consistent with the previous
Rank of RCAanalysis,
Industry that the value added produced by only
Denmark
Finland
Iceland
a few industries is significant
in
Norway
and
Iceland,
as implied
by the steep cumulative value
Norway
Sweden
Germany
added curve. In other countries, the value added of exports is more evenly distributed across
Note:industries,
The cumulativeas
value
added embodied
in foreign
demand
of goods,
the first
n industries
that have
RCA
reflected
in the
slopefinal
of the
curve
thatincluding
is much
less
steep and
quite similar
an RCA above one and ranked by their RCA values. Data is for 2007 (Denmark, Norway, Sweden), 2008 (Germany)
across
countries.
and 2009 (Iceland and Finland).
�
10 In
exports for
for industry
industry �i as ���� � ��� ∗ ( �),, where ��
V A�i isistotal
In particular,
particular,we
wecalculate
calculatethe
the value
value added
added exports
total value-added,
value-added, Xi is (gross)
��
exports
and
Y
is
(gross)
production.
Due
to
data
availability,
the
exports
only
include
the
exports
of
goods.
i
� is (gross) exports and � is (gross) production. Due to data availability, the exports only include the exports of goods.
9
�
�
we may also note that the RCA industries only accounts for a portion of the total value added
embodied foreign final demand. The service industries are significant for all Nordic countries, as
can be seen from Table 3.
Openness, Specialisation and Vulnerability of the Nordic Countries
17
The gross exports
of RCA industries overestimate the economies’ dependency on these industries
due to the import content. On the other hand, the value added exports underestimate it to the extent
other domestic industries supply the RCA industries with intermediate products.
Figure 11 Cumulative value added exports by RCA industries in 2007–2009, % of GDP
Value Added Exports, % of GDP
Figure 12: Cumulative Value Added Exports by RCA industries in 2007-2009, % of GDP
16
12
8
4
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16
Rank of RCA Industry
Finland
Sweden
Denmark
Norway
Iceland
Germany
Note: The cumulative value added embodied in foreign final demand of goods, including the first n industries that have
Note: The cumulative
value added embodied in foreign final demand of goods, including the first n industries that have
an RCA above one and ranked by their RCA values. Data is for 2007 (Denmark, Norway, Sweden), 2008 (Germany) and
an RCA above one
and(Iceland
ranked
their RCA values. Data is for 2007 (Denmark, Norway, Sweden), 2008 (Germany)
2009
andby
Finland).
OECD Structural Analysis Database and own calculations.
and 2009 (IcelandSource:
and Finland).
10
�
In particular, we calculate the value added exports for industry � as ���� � ��� ∗ ( �), where ��� is total value-added,
17
��
�� is (gross) exports and �� is (gross) production. Due to data availability, the exports only include the exports of goods.
Source: OECD Structural Analysis Database and own calculations.
Figure 12 Cumulative gross exports by RCA industries in 2009, % of GDP
Figure 13: Cumulative Gross Exports by RCA industries in 2009, % of GDP
Gross Exports, % of GDP
32
28
24
20
16
12
8
4
0
1
2
3
Denmark
Norway
4
5
6
7
8
9
10 11 12 13 14 15 16
Rank of RCA Industry
Finland
Sweden
Iceland
Germany
Note: The
cumulative
exportsincluding
of goods, including
first n industries
that have
an RCAabove
aboveone
one and
and ranked
Note: The cumulative
gross
exports gross
of goods,
the first the
n industries
that have
an RCA
ranked by
by their RCA values.
their RCA values.Source: OECD Structural Analysis Database and own calculations.
Source: OECD Structural Analysis Database and own calculations.
Since the data that we use are from 2007-2009 it is potentially influenced by the global recession
and the fall in international trade towards the end of this three-year period. For example, the
economic crisis and the fall of Nokia, the Finnish ICT giant, have had a significant effect on the
18
ETLA Raportit – ETLA Reports
No 21
This is in contrast with the gross trade figures for the same industries (Figure 12). In particular, while in terms of gross exports Finland appears to be more dependent on its RCA industries, this is not directly supported by the value added figures. However, by comparing Figure
11 and Table 3, we may also note that the RCA industries only accounts for a portion of the
total value added embodied foreign final demand. The service industries are significant for all
Nordic countries, as can be seen from Table 3.
The gross exports of RCA industries overestimate the economies’ dependency on these industries due to the import content. On the other hand, the value added exports underestimate it
to the extent other domestic industries supply the RCA industries with intermediate products.
Since the data that we use are from 2007–2009 it is potentially influenced by the global recession and the fall in international trade towards the end of this three-year period. For example,
the economic crisis and the fall of Nokia, the Finnish ICT giant, have had a significant effect
on the Finnish economy. This can be seen from Figure 13 which shows the cumulative value of
exports by RCA industries in 2007 and 2009, both in gross and value added terms. In particular, it shows the significant decrease in domestic value added from telecommunications equipment. Prior to the crisis, Finland was considerably more dependent on its RCA industries and
in particular on the production of communication equipment and thus vulnerable to shocks
in those industries. Since then major shocks have hit important export industries and Finland
has experienced a sharp reduction in the significance of its RCA industries and their significance is now closer to Sweden and Denmark.10
18
Figure 13 Cumulative exports by RCA industries in Finland 2007–2009, % of GDP
Figure 14: Cumulative Exports by RCA industries in Finland 2007-2009, % of GDP
30
Value-Added (2009)
25
Value-Added (2007)
Gross Exports (2009)
20
Gross Exports (2007)
15
10
5
0
Paper
Wood
Electrical
Machinery and Basic metals
machinery and equipment
apparatus
Coke, ref. Other transport
Radio,
Fabricated
petroleum
television and metal prod.
prod. and
communication
nuclear fuel
equipment
Electricity, gas
and water
supply
Source:
OECDStructural
StructuralAnalysis
AnalysisDatabase
Databaseand
andown
owncalculations.
calculations.
Source:
OECD
4 Vulnerability
In 10order
to assessthethe
vulnerability
ofperform
the economies
to external
shocks
wecountries.
suggest comparing three
Unfortunately
data
do not allow us to
a similar sensitivity
analysis for
the other
different indicators: the terms of trade, the degree of specialisation, and the concentration of
exporting activities among exporting firms.
4.1 Terms of Trade
First, the ratio of export to import prices, i.e. the terms of trade, may be used as an indicator of the
domestic economy’s vulnerability to external shocks (see e.g. Rodrik 1996). The terms of trade
19
Openness, Specialisation and Vulnerability of the Nordic Countries
4Vulnerability
In order to assess the vulnerability of the economies to external shocks we suggest comparing
three different indicators: the terms of trade, the degree of specialisation, and the concentration of exporting activities among exporting firms.
4.1
Terms of trade
First, the ratio of export to import prices, i.e. the terms of trade, may be used as an indicator of
the domestic economy’s vulnerability to external shocks (see e.g. Rodrik, 1996). The terms of
trade carry two types of information. First, the trend component is an indication of the medium-to-long-term development of the domestic economy and the purchasing power of domestic exports given their volumes. Second, the volatility of the terms of trade around its trend
tells about the sensitivity of the domestic economy to shocks. For example, the world market prices of raw materials have been rather volatile and on an upward trend recently, and we
may thus expect countries with dependence on raw material exports to show positive but volatile terms of trade developments. This suggests that the purchasing power of such economies
tends to fluctuate significantly unless the economy is buffered against the shocks.
Figure 14 shows the terms of trade for the Nordic countries in 1991–2013. It shows the significant increase in Norway’s terms of trade during the last two decades. In Iceland, the re19
Figure 14 Terms of trade, 1991=100
Figure 15: Terms of Trade, 1991=100
200
180
160
140
120
100
80
1991
1993
1995
Denmark
1997
Finland
1999
2001
Iceland
2003
2005
Norway
2007
2009
Sweden
2011
2013
Germany
Source: OECD Economic Outlook No. 94 and own calculations. Terms of trade is the ratio of exports of goods and ser-
Source:
OECD Economic Outlook No. 94 and own calculations. Terms of trade is the ratio of exports of goods and
vices deflator to imports of goods and services deflator. Denmark, Iceland and Germany in 2005 prices, Finland in 2000
services
deflator
to imports
of goods
and services
Denmark,
Iceland
Germany
2005ofprices,
Finland in
prices,
Norway
in 2010 prices,
and Sweden
in 2012deflator.
prices. Note
that the curves
areand
affected
by theinchoice
the national
base years.
2000 prices,
Norway in 2010 prices, and Sweden in 2012 prices. Note that the curves are affected by the choice of the
national base years.
Figure 16 plots the terms of trade volatility and the value added share of exports to GDP in 18
countries. The two axes, which are placed at the arithmetic averages, divide the graph into four
quadrants, which illustrate different characteristics of economies.12 For example, countries in the
top-right quadrant are potentially highly vulnerable to external shocks due to the combination of
20
ETLA Raportit – ETLA Reports
No 21
20
Figure 15 Terms of trade volatility
Figure 16: Terms of Trade Volatility
Value Added Trade, % of GDP
60
IE
50
EE
40
30
DK
NL
UK
20
NO
IS
SE
DE
FI
FR
IT
EL
10
US
0
0
2
4
6
8
10
Terms of Trade Volatility
Note: Terms of trade volatility is measured by the standard deviation of the log of the first difference in the terms of
Note: Terms of trade
volatility
by the standard
deviation
of the
log ofexcluding
the first Norway
difference
the terms of
trade.
The axesis
aremeasured
placed according
to the arithmetic
sample
averages
and in
Iceland.
and own
trade. The axes areSource:
placedOECD
according
tocalculations.
the arithmetic sample averages excluding Norway and Iceland.
Source: OECD and own calculations.
cent global recession brought a significant shock to its terms of trade. In contrast, Denmark
4.2 Specialisation
and Germany have benefited from relatively steady terms of trade. In Finland, there has been
a steady
declinemay
in terms
of trade
sinceabout
the turn
the millennium.
Indue
Sweden,
the trend deThe terms of trade
volatility
not tell
anything
the of
vulnerability
that is
to export
cline seems to have ended in 2005.
specialisation or export quantities as it only concerns nominal fluctuations. Yet, the more
concentrated the
export
is, theofmore
country
is likely
be toofexternal
Figure
15 structure
plots the terms
tradeexposed
volatilitythe
and
the value
addedtoshare
exports shocks
to GDP in
in demand for its
export
products.
This
is
most
clearly
illustrated
in
Figure
17
which
shows
HHinto
18 countries. The two axes, which are placed at the arithmetic averages, divide
the the
graph
11
specialisation index
against value
added
trade.different
However,
while thereofare
some significant
four quadrants,
which
illustrate
characteristics
economies.
For example, countries in the top-right
quadrant
are potentially
highly
vulnerableand
to external
differences in international
comparison,
it turns
out that the
specialisation
terms ofshocks
trade due to the
combination
of
high
terms-of-trade
volatility
and
a
high
value-added-trade
share.
volatility give broadly a similar picture of the vulnerability of Nordic countries. Iceland andIn contrast,
countries in the bottom-left quadrant are less vulnerable to external shocks due to a low level
Norway are again
clear outliers in our sample and Finland is left to the right of the origin, reflecting
of value added from exports and low terms of trade volatility.
a more specialised structure. In contrast, Germany is now placed in the bottom-left quadrant that
could be characterised
as including
less vulnerable
economies.
Clearly, Iceland
and Norway
are significant
outliers in their exposure to international shocks.
Their terms-of-trade volatility, which is driven by their reliance on commodity exports and
the recent crisis, greatly exceeds that of any other economy in our sample. On the other hand,
other Nordic countries are closer to the origin, reflecting their more stable terms of trade. In
particular, Denmark has benefitted from stable terms of trade over time. In Finland, volatility has been more pronounced, but interestingly it has been equal to the volatility in Germany.
11
We exclude Iceland and Norway from the arithmetic average as they are clear outliers.
21
Openness, Specialisation and Vulnerability of the Nordic Countries
4.2Specialisation
The terms of trade volatility may not tell anything about the vulnerability that is due to export specialisation or export quantities as it only concerns nominal fluctuations. Yet, the more
concentrated the export structure is, the more exposed the country is likely to be to external
shocks in demand for its export products. This is most clearly illustrated in Figure 16 which
shows the HH specialisation index against value added trade. However, while there are some
significant differences in international comparison, it turns out that the specialisation and
terms of trade volatility give broadly a similar picture of the vulnerability of Nordic countries.
Iceland and Norway are again clear outliers in our sample and Finland is left to the right of the
origin, reflecting a more specialised structure. In contrast, Germany is now placed in the bottom-left quadrant that could be characterised
as including less vulnerable economies.
21
Figure 16 Specialisation
Figure 17: Specialisation
Value Added Trade, % of GDP
60
IE
50
EE
40
BE
30
AT
DK
IS
SE
NL
ES
UK
DE
20
IT
10
NO
FI
FR
US
0
0
0.1
0.2
0.3
0.4
0.5
HH Specialisation Index
Note: The axes are placed according to the arithmetic sample averages excluding Norway and Iceland.
Note: The axes areSource:
placedOECD
according
the arithmetic sample averages excluding Norway and Iceland.
and owntocalculations.
Source: OECD and own calculations.
4.3
Exporting enterprises
4.3 Exporting Enterprises
far we on
have
focused of
onspecialisation
measures of specialisation
and concentration
in termsproducts.
of export
So far we haveSofocused
measures
and concentration
in terms of export
products.
However,
many
it isofnot
just the goods
numberthat
of exported
goodslimited,
that can be
However, in many
countries,
it isinnot
justcountries,
the number
exported
can be quite
quite limited, but also the number of exporting firms. This may expose countries to shocks that
but also the number of exporting firms. This may expose countries to shocks that hit one particular
hit one particular firm, as has been the case in Finland recently due to the fall of Nokia. In parfirm, as has been
the case
Finland
recently
dueproducts
to the fall
Nokia. In particular,
this is the
case of
ticular,
this isinthe
case when
traded
areof
differentiated
or heterogeneous
in terms
when traded products
are differentiated
or heterogeneous
in terms
of their
quality in
and
their quality
and hence subject
to changes in, e.g.
consumer
preferences
thehence
worldsubject
markets.
to changes in, e.g. consumer preferences in the world markets.
To illustrate the concentration of exports among exporting enterprises, Figure 17 shows
To illustrate the
exports
among
Figure
18 shows
top-10
theconcentration
top-10 exportoffirms’
share
of theexporting
exports ofenterprises,
the top-1,000
exporter
firms the
in the
Nordic
13
12
countries.
of Finnish
extra-EU
exports
areNordic
run by countries.
just ten firms,
while the
Almost
export firms’ share
of theAlmost
exports37ofper
thecent
top-1,000
exporter
firms
in the
37 per cent of Finnish extra-EU exports are run by just ten firms, while the figure in intra-EU
Unfortunately, these data are not available for Norway or Iceland.
exports is almost 45 per cent. The figures are somewhat lower in Denmark, Sweden and Germany,
except in German extra-EU exports.14 Also, the figure shows that intra-EU trade is more
concentrated in a small number of exporting firms than extra-EU trade in Finland while the opposite
is true in Denmark and Sweden.
12
22
ETLA Raportit – ETLA Reports
No 21
22
22
Figure 17 Top-10 exporter firms’ export value in 2010, % of top-1000 exporter firms
FigureFigure
18: Top-10
exporter
firms'
export
%ofoftop-1000
top-1000
exporter
firms
18: Top-10
exporter
firms'
exportvalue
valuein
in 2010,
2010, %
exporter
firms
50
50
40
40
30
20
30
20
10
10
0
Denmark
0
Finland
Sweden
Extra-EU trade
Finland
Denmark
Source: OECD.
Source: OECD.
Germany
Intra-EU
trade
Sweden
Extra-EU trade
Germany
Intra-EU trade
Figure 19 shows that these countries tend to have highly concentrated export markets when
Source: OECD.
compared to other OECD countries. In particular, all Nordic countries have an above- average
figure
intra-EU
is almost
45highly
per cent.
TheWhile
figures
are
somewhat
lower
concentration
exports
in aexports
smalltend
number
of exporting
firms.
theexport
concentration
likelyintoDenmark,
Figure 19
shows
thatofinthese
countries
to have
concentrated
marketsis
when
13
Sweden
and countries.
Germany,
except
in
German
extra-EU
exports.
Also,
theabovefigure
shows
that intrabe affected
byOECD
country
size, it is notable
that
otherallsmall
economies,
suchhave
as Austria
and the
compared
to other
In particular,
Nordic
countries
an
average
EU trade
moreless
concentrated
inexporter-firm
a small number
of exporting firms than extra-EU trade in
Netherlands,
have aismuch
concentrated
concentration.
concentration of exports in a small number of exporting firms. While the concentration is likely to
Finland while the opposite is true in Denmark and Sweden.
Figurethat
19: other
Top 10small
Enterprise
Share such as Austria and the
be affected by country size, it is notable
economies,
Netherlands, have a much
45 less concentrated exporter-firm concentration.
EE
Value Added Trade, % of GDP
Value Added Trade, % of GDP
Figure 1840 Top 10 enterprise share
Figure 19: Top 10 Enterprise Share
35
45
30
40
25
35
20
30
15
25
20
AT
DK
UK
FR
NL
ES
AT IT
10
5
0
15
SE
NL
0
10
10
IT
UK
FR
20ES
EE
DE
FI
PT
SE
EL
DK
DE
PT
30
EL of Exports
Top 10 Enterprise Share
FI
40
50
5
Note: Top-10 enterprise
share of exports of the top-1,000 enterprise exports as measured by the average of extra- and
intra-EU trade. The
0 axes are placed at arithmetic averages.
Sources: OECD and own calculations.
0
10
20
30
40
50
Top 10 Enterprise Share of Exports
Note: Top-10 enterprise share of exports of the top-1,000 enterprise exports as measured by the average of extra- and
Note: Top-10 enterprise
the top-1,000
enterprise
intra-EUshare
trade. of
Theexports
axes areof
placed
at arithmetic
averages.exports as measured by the average of extra- and
Sources:
OECD
and own
calculations.averages.
intra-EU trade. The
axes are
placed
at arithmetic
Sources: OECD and own calculations.
However, as a much larger country, the top-1,000 exporting firms must run a somewhat smaller share of total exports than in the
much smaller Nordic countries. This bias twists the results to some degree, though probably not too much.
13
Openness, Specialisation and Vulnerability of the Nordic Countries
23
Figure 18 shows that these countries tend to have highly concentrated export markets when
compared to other OECD countries. In particular, all Nordic countries have an above- average concentration of exports in a small number of exporting firms. While the concentration is
likely to be affected by country size, it is notable that other small economies, such as Austria
and the Netherlands, have a much less concentrated exporter-firm concentration.
5Conclusions
We have discussed the openness and specialisation of the Nordic economies. We have demonstrated that they are open economies and deeply engaged in international trade although the
domestic value added share in exports and GDP varies. We have shown that each Nordic country is specialised in some specific industries which also tend to constitute a significant source
of value added to the domestic economy. This is consistent with the conventional wisdom regarding the characteristics of the Nordic countries.
However, we also suggest that there exist significant differences in the vulnerability of the
Nordic countries to external shocks. First, Norway and Iceland are clear outliers in terms of
their specialisation and potential vulnerability. Yet, while the Norwegian economy is more exposed to fluctuations in its export prices, its term of trade has evolved very favourably and after years of very large surpluses the country is well buffered against even drastic downturns in
the prices. Second, Sweden and Denmark appear to be the least specialised among the Nordic
countries in their exports as they have a relatively large number of industries where they have
a revealed comparative advantage. Finland has fewer such industries. However, the economy’s
overall dependence on these industries is not much different from that of Sweden or Denmark,
now that the exceptional dependency of Finnish exports on communication equipment has
declined significantly. Denmark, seems to be the least vulnerable to external shocks and it has
clearly benefitted from improved and more stable terms of trade.
Inward and outward FDI stocks and the cross-border activities of domestic and foreign multinationals are, with some differences, more or less at the same level in Denmark, Finland and
Sweden. The latter has attracted the most FDI inflows relative to its GDP and these have been
drawn especially into manufacturing. On the other hand, Denmark and Finland have more
important manufacturing investments abroad. Iceland has the highest FDI-stocks-to-GDP ratios among the Nordic countries but on the other hand it is by far the smallest of the economies. Norway seems to be more closed than the other Nordic countries at least in terms of outward investments, which is peculiar given their vast financial resources.
24
ETLA Raportit – ETLA Reports
No 21
References
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25
Openness, Specialisation and Vulnerability of the Nordic Countries
25
Appendix
Appendix
Table A1. Industries ranked by RCA
RCA # Denmark
1 Fishing
Finland
Paper
Iceland
Fishing
Norway
Fishing
2 Food and beverages
Wood
Food and beverages
Mining and quarrying
Paper
Motor vehicles
3 Electricity, gas and
water supply
Electrical machinery
and apparatus
Basic metals
Electricity, gas and
water supply
Wood
Real estate, renting and
business activities
4
Machinery and
equipment
Other transport
Coke, ref. petroleum
prod. and nuclear fuel
Printing
Printing
5 Fabricated metal prod.
Basic metals
Other non-metallic
Basic metals
6 Other non-metallic
Coke, ref. petroleum
prod. and nuclear fuel
Medical, precision and
optical instruments
Other transport
Machinery and
equipment
Electricity, gas and
water supply
Machinery and
equipment
Electricity, gas and
water supply
7
Other transport
Food and beverages
Coke, ref. petroleum
prod. and nuclear fuel
Rubber and plastics
Radio, television and
communication
equipment
Fabricated metal prod.
Other community, social
and personal service
activities
Machinery and
equipment
Machinery and
equipment
Fabricated metal prod.
Fabricated metal prod.
Chemicals
Paper
Electrical machinery
and apparatus
Paper
Tobacco
Electrical machinery
and apparatus
8 Wearing apparel etc.
9 Agriculture, hunting and
forestry
Sweden
Fishing
Germany
Tobacco
10
Machinery and
equipment
Electricity, gas and
water supply
Coke, ref. petroleum
prod. and nuclear fuel
Fabricated metal prod.
Motor vehicles
Other transport
11
Medical, precision and
optical instruments
Other non-metallic
Motor vehicles
Wood
Chemicals
Electrical machinery
and apparatus
12 Wood
Medical, precision and
optical instruments
Electrical machinery
and apparatus
Medical, precision and
optical instruments
Basic metals
Chemicals
13 Chemicals
Rubber and plastics
Agriculture, hunting and
forestry
Electrical machinery
and apparatus
Rubber and plastics
Medical, precision and
optical instruments
14 Furniture, other
manufacturing
Real estate, renting and
business activities
Rubber and plastics
Chemicals
Medical, precision and
optical instruments
Other non-metallic
15 Rubber and plastics
Chemicals
Fabricated metal prod.
Furniture, other
manufacturing
Wood
16 Printing
Printing
Textiles
Other non-metallic
17 Textiles
Motor vehicles
Printing
Printing
Radio, television and
communication
equipment
Furniture, other
manufacturing
Other non-metallic
18 Leather etc.
Food and beverages
Wood
Rubber and plastics
Food and beverages
19 Paper
Agriculture, hunting and
forestry
Paper
Other transport
20 Coke, ref. petroleum
prod. and nuclear fuel
Textiles
Mining and quarrying
Radio, television and
communication
equipment
Motor vehicles
21
Leather etc.
Leather etc.
22 Mining and quarrying
Furniture, other
manufacturing
Wearing apparel etc.
23 Office, accounting and
computing machinery
Wearing apparel etc.
24 Other community, social
and personal service
activities
25 Motor vehicles
26 Basic metals
Other community, social
and personal service
activities
Mining and quarrying
Other transport
27 Radio, television and
communication
equipment
28 Real estate, renting and
business activities
Source: OECD
Food and beverages
Basic metals
Furniture, other
manufacturing
Textiles
Office, accounting and
computing machinery
Wearing apparel etc.
Other community, social
and personal service
activities
Office, accounting and
computing machinery
Wearing apparel etc.
Office, accounting and
computing machinery
Textiles
Office, accounting and
computing machinery
Textiles
Tobacco
Other community, social
and personal service
activities
Leather etc.
Office, accounting and
computing machinery
Furniture, other
manufacturing
Leather etc.
Leather etc.
Fishing
Radio, television and
communication
equipment
Real estate, renting and
business activities
Agriculture, hunting and
forestry
Agriculture, hunting and
forestry
Tobacco
Tobacco
Wearing apparel etc.
Other community, social
and personal service
activities
Mining and quarrying
Electricity, gas and
water supply
Real estate, renting and
business activities
Real estate, renting and
business activities
Tobacco
Radio, television and
communication
equipment
Agriculture, hunting and
forestry
Coke, ref. petroleum
prod. and nuclear fuel
Fishing
Mining and quarrying
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