Economic Growth in Germany and Norway 1986-2010

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A comparison of economic growth in Germany and Norway from 1986 – 2010. The impact of four key concepts: comparative advantage, culture, economic freedom and innovation progress.

Matúš Magic
Utrecht University School of Economics

Abstract

This paper explains why Germany and Norway are one of the wealthiest nations in the world by using 4 key concepts – Comparative advantage, Innovation progress, Economic freedom and Culture. These four key concepts show us what has had to be done for such economic success. Despite quite many obstacles and bureaucracy in setting up a business in Germany the entrepreneurs are still willing to start business here. This happens due to tight private property rights. In fact, it is easier to set up business in Norway than in Germany. On the other hand Germany has way much better location for an international trade, which has propelled Germany to become the second largest exporter in the world. However, the international trade in Germany and also in Norway would not be possible without people’s creativity and desire to develop innovative and new technologies. Entrepreneurs are ones who innovate and create new technologies. Innovations and new technologies are the basic elements of economic growth. Keywords: Germany, Norway, comparative advantage, innovation progress, economic freedom, culture

A comparison of economic growth in Germany and Norway from 1986 – 2010. The impact of four key concepts: comparative advantage, culture, economic freedom and innovation progress. In today’s world some nations are rich others are not. GDP is a measure of the output of an economy. In fact GDP is also the most common indicator for measuring wealth of nations. GDP is a total amount of goods and services produced in a country in a year. It is obvious that GDP changes over time. Usually GDP increases from one year to another, what indicates that production of goods and services increases. But this might be very misleading while comparing two or more economics. GDP is measured in prices of goods and services in the given year without the adjusting for inflation. As the volume of goods and services is a better indicator for economic development, the increase in goods and services measured should be corrected for price increases. The percentage change in real GDP is known as economic growth. (Hontyová, Lisý & Satková, 1996) Economic growth may differ between countries and is affected by many factors. A list of ten key concepts has been compiled: rule of law, income distribution, economic freedom, culture, specialization, comparative advantage, innovation/technological progress, entrepreneurship, increasing returns to scale (internal, external), production function/production factors/investment (Schramm, 2011). This paper compares economic performance in Germany and Norway using four of these key concepts: comparative advantage, culture, economic freedom and innovation progress. Similarities and differences in economic growth will be studied in the light of these key concepts. Research of the paper will be useful for policy makers so that they may pursue economic growth in their nations. This paper comprises 7 sections – introduction, 5 chapters and conclusion. The first chapter compares the economic growth performance of Germany and Norway over the

investigated period. Each of the following chapter investigates the impact of the chosen key concepts while relating it to economic growth.

A comparison of economic growth in Germany and Norway from 1986 -2010
Graph 1 shows big contrast between annual growth of real GDP in Germany and annual growth of real GDP in Norway. While in Norway annual growth of real GDP is increasing or decreasing for a quite long period, Germany’s annual growth of real GDP fluctuates from year to year. During the last 25 years the average annual growth in Norway was 2.52% while in Germany it was 1.96%.

In the years 1986 until 1991...
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