Making trade work for all – the Danish case
Making trade work for all – the Danish case
Original title: Betydning af international handel for økonomi og beskæftigelse i Danmark
International trade is important to Denmark. Danish firms export goods and services worth DKK 1,100 billion annually, supporting half of the employment in the private sector in Denmark. In addition, imports of goods and services are crucial for Danish firms to produce and operate in Denmark. For example, half of the world’s insulin is produced in Denmark by Novo Nordisk but less than 1 per cent of Novo Nordisk’s revenue comes from sales in Denmark. Further, imports generate a broader selection of goods and at lower prices. The total effects of international trade on the Danish economy are positive. However, while some firms and sectors prosper, others struggle. Therefore, there are people who have experienced lower growth in wage income – and even income reductions – as a consequence of increased international trade.
In light of these challenges, Copenhagen Economics has been asked by the Danish Business Authority to analyse the benefits and costs associated with international trade, and to assess the role of the Danish policies and labour market design in reducing the transition costs for individuals that are challenged by international trade.
The main conclusions from our study are that:
More than one third of the growth in Danish GDP since 1992 is due to increased international trade.
The design of the Danish labour market has helped lower the individual transition costs, e.g. through the use and provision of active labour market policies, training and education.
In the future, the main challenge is the risk of increasing protectionism and possible restrictions to trade, which can be harmful to the Danish economy.
The study is commissioned by the Danish Business Authority (Erhvervsstyrelsen).
In brief
Increased international trade has raised Danish GDP by DKK 240 billion a year since 1992, more than a third of all real growth in the period.
DKK 240 bn Annual gain to Danish GDP from increased trade since 1992, equal to DKK 90,000 per household.
36 per cent Share of real GDP growth from 1992 to 2016 attributable to increased international trade.
800,000 jobs Danish jobs supported by exports, close to half of all private sector employment.
DKK 4,000 Annual saving for each Dane from imports from five low-wage countries, set against buying the same goods again inside the EU.
1.5 per cent Average annual real wage growth from 1992 to 2008 in industry, the sector most exposed to global competition.
Commissioned by the Danish Business Authority (Erhvervsstyrelsen). Authors: Tine Jeppesen, Eva R. Sunesen, Jonas J. Henriksen and Martin H. Thelle, with Professor Jakob R. Munch, University of Copenhagen. Published February 2018. Data covering 1992 to 2016. Denmark.
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About this analysis
Copenhagen Economics analysed what international trade means for growth, employment, wages and consumer prices in Denmark, and how far the Danish labour market model absorbs the cost of adjustment for the people it affects. The analysis draws on existing research together with data from Statistics Denmark, the OECD, the World Bank and Eurostat, covering 1992 to 2016.
The GDP estimate follows the method the Peterson Institute for International Economics applies to the United States, using a conservative ratio of 0.24 between growth in trade and growth in GDP. The findings on offshoring cover manufacturing firms with more than 50 employees, so they do not capture every job relocation in the period.