Economy

Norway possesses the second highest GDP per-capita (after Luxembourg) and third highest PPP per-capita in the world (after Luxembourg and Ireland), and has maintained 1st place in the world in the UNDP Human Development Index (HDI) for the fifth consecutive year (2006). Cost of living is about 25% higher in Norway than the UK and 30% higher than in the US.

The Norwegian economy is an example of mixed economy, featuring a combination of free market activity and government intervention. The government controls key areas, such as the vital petroleum sector and the electricity production. The control mechanisms over the petroleum resources is a combination of state ownership in major operators in the Norwegian fields (Statoil approx. 70% in 2005, Norsk Hydro 43% in 2004) while specific taxes on oil-profits for all operators are set to 78%, finally the government controls licensing of exploration and production of fields.

The country is richly endowed with natural resources: petroleum, hydropower, fish, forests, and minerals. Norway has obtained one of the highest standards of living in the world, partly from petroleum production. Norway also has a very high employment ratio.

In 2006, oil and gas accounted for 58% of exports. Only Russia and OPEC member Saudi Arabia export more oil than Norway, which is not an OPEC member. To reduce over-heating from oil-money, the uncertainty from the oil income volatility, and save money for an aging population, the Norwegian state started in 1995 to save petroleum income (taxes, dividends, licensing, sales) in a Sovereign wealth fund ("Government Pension Fund - Global"). This also reduces the boom and bust cycle associated with raw material production and the marginalization of non-oil industry.

Because of its size the fund is invested in developed financial markets outside Norway. The budgetary rule ("Handlingsregelen") is to spend no more than 4% of the fund each year (assumed to be the normal yield from the fund). By January 2006, the Fund was at US$200 billion, representing 70% of GDP in Norway. During the first half of 2007, the pension fund became the largest fund in Europe, totalling about US$300 billion. By April 2007, Norway had the largest capital reserve per capita of any nation. Projections indicate that the Norwegian pension fund is set to become the largest capital fund in the world. Conservative estimates tell that the fund may reach US$800-900 billion by 2017. Other natural resource-based economies (examples: Russia and Chile) are trying to learn from Norway by establishing similar funds.

The future size of the fund is of course closely linked to the oil price and the developments in international financial markets in which the fund is invested.

Referendums in 1972 and 1994 indicated that the Norwegian people wished to remain outside the European Union (EU). However, Norway, together with Iceland and Liechtenstein, participates in the European Union's single market via the European Economic Area (EEA) agreement. The EEA Treaty between the European Union countries and the EFTA countries describes the procedures for implementing European Union rules in Norway and the other EFTA countries. This makes Norway a highly integrated member of most sectors of the EU internal market. However, some sectors, such as agriculture, oil and fish, are not wholly covered by the EEA Treaty. Norway has also acceded to the Schengen Agreement and several other intergovernmental agreements between the EU member states.

In 2000, the government sold one-third of the then 100% state-owned oil company Statoil in an IPO. The next year, the main telecom supplier, Telenor, was listed on Oslo Stock Exchange. The state also owns significant shares of Norway's biggest bank, DnB NOR and the airline SAS. Since 2000, economic growth has been rapid, pushing unemployment down to levels not seen since the early 1980s.