Patterns of Trade and Specialisation in Iceland

University essay from Lunds universitet/Nationalekonomiska institutionen

Abstract: During the last decade, Iceland experienced an impressive record of economic growth. This was made possible by a low inflation rate, low unemployment, increased stocks of foreign direct investments and expanded foreign trade. It was, however, primarily the latter two that accounted for this economic success. This thesis studies the structure and implications of Iceland’s trade expansion by studying its patterns of trade and specialisation. Iceland’s inter-industry trade is analysed through calculations of Balassa’s index of revealed comparative advantage and show that Iceland, in accordance with Heckscher-Ohlin assumptions, exports commodities that intensively uses the country’s abundant resources of fishing waters, hydro- and geothermal energy and land. The analysis of the Grubel-Lloyd index indicates large emphasis of intra-industry trade in manufactured and capital intensive products. These are also expected results as Iceland’s main trading partners are similarly developed countries within the EEA.

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