Domestic markets and international integration: paths to industrialisation in the Nordic countries

Abstract

This article scrutinises the role of structural change and foreign trade in the Nordic countries, except Iceland, in industrialization prior to 1914. Sector contribution to GDP as well as the role of the foreign trade is compared across the countries. The comparison uncovers different paths to industrialization that cannot be explained by reference to received views, such as the shock of free trade or open economy forces. Denmark was not only richer than the rest of the ‘Nordic Periphery’ but also earlier in industrialization. Furthermore, agriculture had a much neglected role in Swedish catch-up, and despite its relatively large export sector, Norway lagged behind, as did Finland. Economic growth was characterised not only by rising exports but also by capital imports and increasing consumption, indicating wider economic and social change. Different sector structures in the Nordic countries largely explain why there was no clear pattern of catch-up or convergence, neither in the region nor in relation to the Western European leaders. We conclude that the social capability of the Nordic countries to integrate and respond to external influences 1850–1914 must be seen in the perspective of the evolving domestic markets and the prior establishment of market institutions.

Keywords:

• Convergence
• industrialization
• structural change
• foreign trade

JEL Classification:

• N13
• O14

Acknowledgements

Financial support from the Swedish Research Council for the project Swedish Regional Economic Growth in a European Perspective (VR 421-2008-2023) is gratefully acknowledged. The authors have also benefitted from valuable advice from two anonymous referees and the editor Alfred Reckendrees. Remaining flaws are ours.

Notes

¹The comparative approach seems to have been reserved for encyclopaedias: Jörberg, ‘Nordic Countries’ (1973); Hornby, ‘Dänemark, Norwegen und Schweden’ (1993); Ljungberg, ‘Nordic Countries’ (2004).

²O'Rourke/Williamson, ‘Open Economy Forces’ (1995) and ‘Education, Globalization, and Catch-Up’ (1995); for a critique and a moderation, see Ljungberg, ‘Catch Up’ (1996) and ‘Impact of the Great Emigration’ (1997); Schön, ‘Internal and External Factors’ (1997).

³Abramovitz, ‘Catching Up’ (1979).

⁴See foremost Jörberg, ‘Nordic Countries’ (1973); Hodne, Norges ökonomiske (1981), ‘Export-Led Growth’ (1994).

⁵Brautaset, Norsk eksport (2002); Bjerke, Langtidslinjer (1966).

⁶Lewis, ‘Economic Development’ (1954).

⁷Schön, Modern svensk (2000); Schön, Economic History (2012), Chapter 3.

⁸Abramovitz, ‘Catching Up’ (1986).

⁹Thorburn, Economics of Transport (2000); Ejrnaes/Persson, ‘Gains’ (2010); Andersson/Ljungberg, ‘Grain market integration’ (2012).

¹⁰Nilsson et al., ‘Agrarian Transition’ (1999).

¹¹Ljungberg, ‘Nordic countries’ (2004).

¹²Hyldtoft, Danmarks ökonomiske (1999), 71ff.; Schön, Modern svensk (2000), 205.

¹³Schön, ‘British competition’ (1980), ‘Market development’ (1986), ‘Internal and external’ (1997); Carlsson, ‘Jordbrukets roll’ (1980); Sejersted, ‘A Theory’ (1992); Hyldtoft, Danmarks ökonomiske historie (1999); see also Ljungberg, ‘Catch-up’ (1996). The concept ‘domestic market model’ is used first time in Schön, Industrialismens förutsättningar (1982).

¹⁴Bruland, Technology transfer (1991).

¹⁵Schön, Historiska nationalräkenskaper (1988).

¹⁶Sejersted, ‘A Theory’ (1992); Hyldtoft, Danmarks ökonomiske (1999); Schybergson, Hantverk och fabriker (1974).

¹⁷Schön, En modern svensk (2000), Schön, Economic History (2012).

¹⁸Total exports (in constant prices) of Norway grew at an annual rate of 3.3% over the period 1830–47, and 5.5% 1847–65. Calculated from Brautaset, Norsk eksport (2002), 267.

¹⁹Ljungberg, 'Nordic countries’ (2004).

²⁰See e.g., Talia, Scandinavian Currency Union (2004).

²¹Ljungberg, ‘Impact’ (1997).

²²Haavisto, Money and Economic Activity (1992).

²³Ljungberg, ‘European Market Integration’ (1996).

²⁴In calculations of urbanisation, a threshold of 5000 inhabitants is often used. Here the administrative boundary is used, including also towns with less than 5000 inhabitants. Although such towns were fairly numerous, their impact upon the urbanisation rate is rather limited due to their low number of people. Thus, for Sweden such a threshold would reduce the urbanisation rate with only about 2.5% points over the period. From this follows as well that very few, if any, industrial centre in rural areas would qualify as urbanised with the threshold of 5000 inhabitants.

²⁵Bringing in the population both of rural industrial centres and of the surroundings of Helsinki would raise the Finnish level substantially according to Heikkinen, Labour market (1997), 36. Such a procedure would raise the levels also in the other Nordic countries but probably to a lesser extent than in Finland.

²⁶Gerschenkron, ‘Economic Backwardness’ (1952), 16.

²⁷Assessed on basis of Johansen, Industriens vaekst (1988), who also pointed out this anomaly in Hansen, Oekonomisk vaekst (1974). A later revision of the series for Danish manufacturing industry by Kristensen, ‘Industrial growth’ (1989), does not, however, correct for this anomaly but redistributes shares from handicraft to manufacturing which not affects our estimates since both are part of the industry sector.

²⁸See, e.g., Bergh et al., Development and Growth (1981), 71 ff, about Norwegian shipping.

²⁹The transfer means that the share of agriculture in the value added of 1865 increases from 41.5 to 46.1% while the share of industry decreases from 24.8 to 22.9 and of services from 33.7 to 31.1. In 1910, the transfers were very small.

³⁰Hyldtoft, Danmarks ökonomiske (1999), 160.

³¹Chenery et al., Industrialization (1986); Wang/Szirmai, ‘Productivity growth’ (2008).

³²Broadberry, ‘How did the United States’ (1998).

³³If , counter-factual productivity change = p _i – . van Ark/Timmer, ‘Asia's Productivity’ (2003), denounces the ‘modified shift-share’ since it allegedly implies zero productivity change in diminishing sectors. This is, however, not the case and Broadberry's contention that it shows an upper bound estimate of the structural effect seems reasonable.

³⁴See e.g. Bergh et al., Development and Growth (1981).

³⁵Montgomery, Industrialismens (1947), 101.

³⁶The cyclical pattern over periods of about twenty years is from Schön, ‘Kapitalimport’ (1989), ‘Internal and external’ (1997).

³⁷Henriksen/Ölgaard, Danmarks udenrigshandel (1960).

³⁸Hansen, Ökonomisk vaekst (1972), 205f; Jörberg, ‘Nordic countries’ (1973), 407.

³⁹Hodne, Norges ökonomiske historie (1981), 362.

⁴⁰Schön, ‘Kapitalimport’ (1989), Schön, Economic History (2012), 176.

⁴¹Bärlund, ‘Finland's Balance’ (1992).

⁴²Kaukiainen, Sailing (1991), see also Hjerppe, Finnish Economy (1989), 154.