Foreign Direct Investment in Norway’s Manufacturing Sector

Abstract:

This report investigates the location advantages of the Norwegian manufacturing industry while focusing on economic as well as institutional factors. The economy relies highly on the exploitation of natural resources and only minor parts of its exports are technology based. Norway as a market for consumer goods is not only small in size but is also located at the periphery of Europe. Since the beginning of industrialisation, policies towards foreign direct investment (FDI) have had two targets: The first has been to keep as much of the resource rent as possible within the country and the second, to develop a domestic manufacturing industry. A variety of political tools has been used to achieve these objectives. Although various international agreements aim to reduce preferences for domestic production, several sectors in the Norwegian manufacturing industry remain protected by governmental policy. Norwegian MNEs have internalised former and present L-advantages into firm-specific assets. Domestic interest groups or the state partly control several of these enterprises. Compared to other small European countries, Norway has a relatively low share of FDI in the manufacturing industry.

Nonetheless, over the last decades the country has experienced a substantial increase in FDI. This is partly due to investments of foreign affiliates of Norwegian multinational companies, reinvesting in Norway. In 1996, on an average, 18% of the employment in firms with at least 50 employees was located to foreign controlled firms while the corresponding figures in 1980 and 1991 were 8% and 13%. FDI mainly takes the form of mergers and acquisitions and is particularly significant in sectors with an above average R&D intensity and in other market segments with a relatively high producer concentration. The main industrial clusters as well as the production of consumer goods have experienced the major growth of FDI employment in the period 1991–1996. Often, these are also sectors with a high degree of governmental protection.