The Level and Growth Effects in Empirical Growth Models for the Nordic Countries : A Knowledge Economy Approach

We estimate the steady state growth rate for the Nordic countries using a “knowledge economy” approach. An endogenous growth framework is employed, in which total factor productivity is a function of human capital (measured by average years of education), trade openness, research and development, and investment ratio. We attempt to identify the variables which have significant level and growth effects within this framework. We find that education plays an important role in determining the long-run growth rates of Sweden, Norway, and Denmark; and trade openness has growth effects in Sweden, Finland, and Iceland. The investment ratio plays an important role for growth in Finland. In addition to growth effects, education also has level effects in Sweden, Finland, and Iceland. Research and development, has no level or growth effects in any of the Nordic countries. This may be attributable to the fact that research and development are driven by openness and education. Policy measures are identified to improve the long-run growth rates for these countries