A Microstate with Scale Economies: The Case of Iceland

University of Iceland, Institute of Economic Studies Working Paper No. W02:10

29 Pages Posted: 7 Oct 2003

See all articles by Tryggvi Thor Herbertsson

Tryggvi Thor Herbertsson

University of Reykjavik

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Date Written: December 2002

Abstract

This paper looks at the importance of scale economies - defined in terms of the benefits from innovation - from both a theoretical and an empirical perspective. We argue that one can only gauge the degree of scale economies at the industry level by taking account of the degree of specialization - hence the reliance on international trade - as well as the size of an economy. We show that in Iceland specialization in fishing results in a sector which ranks 13th in the world, hence belying the small size of the population and the overall economy. Not surprisingly, the bulk of R&D in Iceland is focused on providing this industry with an ever-expanding range of inputs, resulting in a high rate of growth of GDP - as well as a high standard of living in the country as a whole - in comparison with other OECD economies.

Keywords: Economies of scale, R&D, Icelandic economic history

JEL Classification: Q2, Q3, O1

Suggested Citation

Herbertsson, Tryggvi Thor and Zoega, Gylfi, A Microstate with Scale Economies: The Case of Iceland (December 2002). University of Iceland, Institute of Economic Studies Working Paper No. W02:10. Available at SSRN: https://ssrn.com/abstract=444040 or http://dx.doi.org/10.2139/ssrn.444040

Tryggvi Thor Herbertsson (Contact Author)

University of Reykjavik ( email )

Reykjavik
Iceland
+354 8613162 (Phone)

HOME PAGE: http://www.ru.is

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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