Question

Norway’s economy is significantly dependent on oil, and starting in 2004, its oil output began to stagnate as the country’s deposits were running dry. However, in 2007, new oil reserves were discovered in the North Sea that could only be fully extracted with an untested, cutting edge technology called Ionic Infusion. The Ionic Infusion method injects saltwater into underwater shale deposits, causing a chemical reaction that activates the oil and makes it extractable. Norwegian oil firms employed this technology to the new deposits in late-2007. Below is Norway’s oil output per capita figures from 2002 to 2018. Norway’s population is assumed to have stayed constant during 2002-2018. Based on this information and the data & chart below, please explain the changes in Norway’s oil sector productivity from 2002-2018, including at least three concepts related to economic and productivity growth over time.

Year Barrels Per Capita (graph of this data is included in the files section as "Oil Production Graph)
2002 146
2003 147
2004 147
2005 147
2006 146
2007 146
2008 140
2009 136
2010 138
2011 146
2012 150
2013 155
2014 163
2015 164
2016 165
2017 166
2018 166

Answer 1

As we can see that the production increased by a very small margin from 2002 to 2003 after which the productivity growth was zero. The stagnancy in the productivity continued till 2007.

Quite surprisingly the productivity fell sharply in 2008 and the fall continued till 2010.

With development of new technology the productivity growth went up significantly in the year 2011 and since then there has been more or less constant marginal productivity growth till 2018.

Productivity is the measure of production efficiency. At a national level it captures the economy’s ability to ‘harness its physical and human resources to generate output and income.

Productivity growth refers to an increase in the value of outputs produced for a given level of inputs, over a given period of time.

There are three commonly used measures of productivity:

Partial Factor Productivity (PFP)—examples are capital productivity (measured as GDP per unit of capital) and labour productivity.

Labour productivity is the most used PFP measure. It is usually measured as the volume of output per hour worked.

Other measures of labour productivity used (mainly for international comparisons) include the value of output (GDP) per employee or per capita.

Total Factor Productivity (TFP)—this is a true measure of productivity which encompasses all the factors of the productivity equation.

As it is very difficult to measure all the factors of productivity a proxy measure was developed to take account of multiple factors, but not all factors. This is known as multifactor productivity. Multifactor productivity (MFP)—the volume of output from a bundle of both labour and capital inputs.

The calculation of productivity growth is the residual of any difference between the level of output growth and the level of input growth.