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Economic Development In Greenland: A Time Series Analysis Of Dependency, Growth, And Instability By Joan Nymand Larsen A Thesis Submitted to the Faculfy of Graduate Studies in Partial Fulfillment of the Requirements of the Degree of Doctor of Philosophy Department of Economics University of Manitoba Winnipeg, Manitoba @ Joan Nymand Larsen, 2002 tt¡$onat.uurav Bibliothèque nalionale l*l du Canada Acquisitions and Acquisitions et Bibliographic Services services bibliographiques 395 Wellingrton Street 395, rue Wellington OttawaON KlAOM Ottau¡a ON KlA 0N4 Canacla Canada Yout 6b Voue réléffice Ou frle lloùa ólétæce The author has granted a non- L'auteur a accordé ì¡ne licence non exclusive licence allowing the exclusive permettant à la Natíonal Library of Canada to Bibliothèque nationale du Canada de reproduce, lonn, distribute or sell reproduire, prêter, distribuer ou copies of this thesis in microform, vendre des copies de cette thèse sous paper or electronic formats. la forme de microfiche/fiIm, de reproduction sur papier ou sur format électronique. 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Neither the droit d'auterlr qui protège cette thèse. thesis nor substantial exfacts from it Ni la thèse ni des extraits substantíels may be printed or otherwise de celle-ci ne doivent êne imprimés reproduced without the author's ou autrement reproduits sâns son permission. autorisation. 0-612-76737-X Canad'ä THE UNIVERSITY OF MANITOBA FACULTY OF GRADUATB STUDIES ***** COPYRIGHT PERMISSION PAGE Economic Development in Greenland: A Time Series Analysis of Dependency, Growth, and Instability BY Joan Nymand Larsen A Thesis/Practicum submitted to the Faculty of Graduate Studies of The University of Manitoba in partial fulfillment of the requirements of the degree of Doctor of Philosophy Joan Nymand Larsen @ 2002 Permission has been granted to the Library of The University of Manitoba to lend or sell copies of this thesis/practicum, to the National Library of Canada to microfilm this thesis and to lend or sell copies of the film, and to University Microfilm Inc. to publish an abstract of this thesis/practicum. The author reserves other publication rights, and neither this thesis/practicum nor extensive extracts from it may be printed or otherwise reproduced without the author's written permission. TABLE OF CONTENTS Page ACKNOWLEDGEMENTS ABSTRACT LIST OF FIGURES LIST OF'TABLES CHAPTER 1. INTRODUCTION I 1.0 Scope and objective of thesis 1 1.1 Field research and methodology 4 1.2 Data quality and limitations 7 1.3 Organization of the thesis 8 2. AN INTRODUCTION TO THE GREENLA¡ID ECONOMY 11 2.0 Introduction 11 2.1 Characteristics of Greenland and its economy 11 2.2 Conclusion JJ 3. GOALS AND OBJECTIYES OF ECONOMIC DEVELOPMENT POLICY IN GREENLAND 34 3.0 Introduction 34 3.1 Overview of the Danish government approach to economic development in Greenland 35 3.2 Greenland's Home Rule approach to economic development 56 3.3 Conclusion 7t Page 4.0 TESTING FOR PRIMARY.EXPORT-LED GROWTH 74 4.0 Introduction 74 4.I The theory of primary-export-led growth 75 4.2 Greenland and its export sector 80 4.3 Linkages in the Greenland economy 84 4.4 Testing for export-led-growth in Greenland 9T 4.5 Conclusion 113 5.0 ECONOMIC DEPENDENCY IN GREENLAND, 1955.1998 116 5.0 Introduction tt6 5.1 Analytical Framework tr6 5.2 MeasuringDependency t2s 5.3 A case of external dependency in Greenland 131 5.4 Conclusion 173 6.0 AN ANALYSIS OF THE RELATIONSHIP BETWEEN EXTERNAL DEPENDENCY AND ECONOMIC GROWTH 176 6.0 Introduction 176 6.1 resting the relationship between dependency and economic growth t76 6.2 Causality analysis of dependency and economic growth t96 6.3 Conclusion 207 7.0 STRUCTURAL CHANGE IN GREENLAND, 1955-1998 209 7.0 Introduction 209 7.1 Testing for structural change 210 7.I.1 Unit root test 211 7.I.2 Breakpoints in the Greenland economy 214 7.1.3 The model 222 7 .1.4 Estimation results and discussion 224 7.2 Conclusion 241 Page 8.0 ECONOMIC INSTABILITY IN GREENLAND, 19s5-1998 243 8.0 Introduction 243 8.1 Def,rnition and measurement of export instability in the literature 244 8.1.1 Measuring export instability in Greenland 248 8.2 Causes of export instability 254 8.2.1 Causes of export instability in Greenland 263 8.3 Consequences of export instability 275 8.3.i Testing the consequences of export instability in Greenland 282 8.4 Measuring income instability in Greenland 287 8.5 Causes of income instability in Greenland 293 8.6 Consequences of income instability in Greenland 303 8.7 Conclusion 307 9.0 CONCLUDING COMMENTS 312 BIBLIOGRAPHY 329 Acknowledgements I would like to express my sincere appreciation and gratitude to my advisor Dr. John Loxley for his mentorship and invaluable guidance, and for his support and encowagement in all phases of this research. Thank you so much. I would also like to thank Dr. Paul Deprez and Dr. Fred Shore for their very helpful comments. And sincere thanks are also extended to my extemal examiner Dr. Marguerite Mendell for her comments and suggestions at the final stage of this thesis. I would like to extend my deepest and heartfelt appreciation to Birger Poppel, Chief Statistician of Statistics Greenland, for his keen interest, invaluable support and encouragement throughout this study. He and his staff have been a true source of inspiration, and I would like to thank them all for their excellent assistance and advice. In addition, I would like to express my thanks to the numerous directors, government officials and staff in the various Home Rule departments, and Royal Greenland A"iS, who gave so generously of their time and who all expressed such a keen interest in this study. Finally, I would like to acknowledge the very generous support of the Commission for Scientific Research on Greenland, Copenhagen, Denmark, which enabled me to undertake field research in Greenland and Denmark. Tusind tak for jeres stølte. Abstract The main objective of this thesis is an empirical investigation into obstacles to economic development in Greenland. A central theme is the degree of trade, financial, and technological dependency, and its consequences for economic growth and instability in Greenland's post-colonial history. Economehic models are specified to test hypotheses about the association between economic dependency and growth and instability. The econometric results suggest first, that primary exports have been able to produce trickle-down effects that have been a contributing factor in the economic growth process in Greenland. Second, the results of an empirical investigation into the relationship between economic growth in Greenland and indicators of trade, financial, and technological dependency do not find support for the theoretical proposition fhat a negative association exists between economic growth and dependency. Rather, the evidence points to a positive association between growth and some indicators of dependency. Third, an analysis of structural change and instability suggest that structural change has occurred in Greenland. In general, the analysis points to the sensitivity of the Greenland economy to shocks to its natural resource supply, and it highlights the lack of areal change in policy regime with the implementation of Home Rule. Fourth, an empirical investigation into the degree of export and income instability in Greenland, and its causes and consequences, suggests first, that export and income instability is associated with some indicators of economic dependency, and second, that export and income instability both act as deterrents to economic growth in Greenland. List Of Fisures Figure Page 2.1.1 Map Of Greenland 13 4.2.1 Greenland's Primary Export Ratio, 1955-1998 81 5.3.1 The Share Of Fish Products In Total Export In Greenland, 1955-1998 r41 5.3.2 Trade Concentration In Greenland, 1955-1998 t44 5.3.3 Geographic Concentration Of Trade In Greenland, 1955-1998 145 5.3.4 Greenland's Trade With Denmark, 1955-1998 147 5.3.5 Geographic Concentration Of Export Versus Denmark's Share In Greenland's Export, I 955-1 998 148 5.3.6 Geographic Concentration Of Import Versus Denmark's Share In Greenland's Import, 1955-1998 I49 5.3.7 Expenditures On Greenland By The Danish State, 7955-1998 I57 5.3.8 Danish State Expenditures On Greenland As A Percentage Of GDP 158 5.3.9 A¡nual Block Grant As A Percentage Of Greenland's GDP, 1955-1998 159 5.3.10 Danish Working Age Population As A percentage Of The Total Working Age Population In Greenland, 1 955- I 998 166 5.3. 1 1 Greenland's Capital-Import Ratio, 1 955- 1 998 t69 7.I Real Export In Greenland, 1955-1998 215 7.2 Real Gross Domestic Product In Greenland, 1955-1998 216 7.3 Estimated Residuals From Equation (7.1) 219 7.4 Estimated Residuals From Equarion (7.2) 221 8.1.1 Export Instability Index, 1955-1998 249 Figure Page 8.1.2 Index Of Average Export Instability, IIX, 1955-199g 252 8.1.3 Annual change In The Average Export Instability, 1955-199g 253 8.4.1 Income Instability In Greenland (Index IG), 1955-1999 289 8.4.2 Index of Average GDP Instability (Index IIGDP), 1955-199g 29t 8.4.3 Annual Change In GDP Instability Index, 1955-199g 293 List Of Tables Tables Page 2.1.1 The Greenland Economy, 1955-1998 18 2.1.2 Summary Statistics Of Greenland's Intemational Trade 20 2.1.3 Catches Of Fish By Greenlandic Vessels. 1987 To 1998 22 2.1.4 Greenland's Working Age Population 26 2.1.5 Distribution of Employrnent Between The Population Born In Greenland And rhe Population Born outside Greenland.