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What Happens to Norway Without Oil Income?
There is a common perception that Norway as we know it today is unsustainable and will radically change once oil runs out. But is that true?
It is commonly assumed that Norway is in a similar situation to oil-rich Gulf states with respect to a future without oil. However, we need to look at the specifics to explain why this is not the fact and why Norway will most likely handle a future without oil quite well.
Superficially, a world without oil exports seems hard for Norway to handle. According to various metrics, Norwegian oil exports make up 40% of exports and 14% of Norwegian GDP. How can a country survive that big of a hit to its exports?
To answer this, we first need to understand the role of exports in any economy.
The Purpose of Exports
We are used to thinking about exports as something you want to do as much as possible of. However, this is a flawed thinking. Exporting means you are shipping goods out of your country. Naturally, you want goods and services shipped into your country, not out of it.
Thus exports are not done because they are inherently good, but because they are a necessary evil. Exports exist to balance imports.
The Norwegian economy in 2019 imported goods and services to a value of 757.9 billion Kroner. The Norwegian currency is named “kroner,” often shortened NOK (NOrwegian Kroner) to distinguish it from Swedish and Danish Kroner.
Countries abroad don’t take payment in NOK. They take payment in Euros, dollars, yen and other currencies. Thus for Norway to buy products from abroad, it needs to obtain foreign currency. Norway can do that by exporting products that foreign countries want, and thereby obtain foreign currency. This currency can then be used to buy foreign products and services that Norwegians desire.
Thus for any country to sustain its standard of living, it needs to balance its exports and imports. In truth, reality is a bit more complicated than that. For instance the US is running a major trade deficit every year, but still seems to be doing fine. Why?
