Ida Wolden Bache: Economic perspectives

Annual address by Ms Ida Wolden Bache, Governor of Norges Bank (Central Bank of Norway), to the Supervisory Council of Norges Bank and invited guests, Oslo, 13 February 2025.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Data accompanying the speech

"Some of the richest countries in the world are small. They are also outward looking."

So starts the first chapter of Victor Norman's textbook on a small open economy. This is also an apt description of our country. Openness and trade have been essential to our prosperity.

Victor Norman passed away last year, and with that Norway lost a leading researcher and an outstanding communicator. The first edition of Victor Norman's book was published in 1983. The quotation I just cited is taken from the expanded edition released ten years later. That was more than 30 years ago, but the book bears its age well. The insights it provides are no less relevant today.

The framework conditions for international cooperation and trade are in play. There is war in Europe, and the governments of many countries see a need for rearmament. In today's world, emphasis must be placed on national security and preparedness considerations.

But the gains from trade with other countries are still there in full, especially for a small economy like ours. Norman points out that small countries often have a narrow resource base as they tend to cover a small part of the earth's crust. Norway, for example, is abundant in energy resources, but poor in arable land and the crop season is short. Norman posits in his textbook that if we shut ourselves out, such a resource base would have left us sitting hungry in overly heated homes. Trade with other countries allows us to decouple consumption from production. Small countries also have small markets, which means that the cost of producing some things domestically is higher than importing them. International trade expands markets. We can sell aluminium and buy aircraft.

But as Norman writes: "Open economies are not without their problems. Small countries must (almost by definition) take the world as it is – with minimal possibility of influencing international developments." This is something we have experienced, most recently during the pandemic and the subsequent global surge in inflation.