Dutch disease and agriculture in Norway revisited: The oil price, food imports, resource and sustainability nexus

Abstract

Studies show that the increase in the trade of food has had severe environmental consequences for the exporting countries. But what about food imports? The present study analyses a special case: the intersection (or “nexus”) between food imports, resource utilisation, environmental impacts and the petroleum sector in the oil-exporting country of Norway. Norway has relatively little cultivated farmland, but a large rough-grazing area. If the revenues from the export of oil contribute to increased imports of food items such as milk, meat and eggs, this might crowd out domestic production of food items where Norway possesses natural preconditions for increased supply based on locally produced animal feed. Moreover, Since Norwegian production of these items has lower GHG emissions than the imported products, the export of oil contributes not only to inefficient resource utilisation, but also to negative consequences for the environment. Using the time series econometric method of cointegration, we document the existence of stable long run equilibrium relations between the price of oil, the import-weighted exchange rate and food imports: a 1% rise in the price of oil was consistent with an increase in food imports of approximately 0.17% on average, a quantity we call the “oil price elasticity of food imports”. The revenues from the petroleum sector are thus shown to have a negative impact on the aforementioned resource and environmental factors, which increase with the price of oil. The theoretical framework applied is the branch of macroeconomic theory called “Dutch disease”, also known as “the resource curse”. The contribution to the literature is the augmentation of this theory by the results of this study.