The Icelandic Economy: a victim of the financial crisis or simply inefficient?

Dong-hyun Oh (), Hans Lööf () and Almas Heshmati ()

No 199, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: Iceland, one of the smallest European economies, was hit severely by the 2008-financial crisis. This paper uses a firm-level Community Innovation Survey (CIS) data set to consider the economy in the period preceding the collapse of its financial system. We examine the linkage between the crisis and innovativeness from the perspective of technical efficiency by means of the Data Envelopment Analysis of 204 randomly selected firms. The results suggest that a substantial fraction of the Icelandic firms can be classified as non-efficient in their production process. The production scale of many manufacturing firms is too small to be considered technically efficient, while services firms typically use excessive resources in their production process. A remarkably weak performance in transforming R&D and labor efforts into successful innovations is observed. Based on the empirical results, suitable policy implications are suggested to remedy the inoptimal production structure and help economic recovery.

Keywords: Technical efficiency; R&D; Innovation; Productivity; Manufacturing; Services; Iceland (search for similar items in EconPapers)
JEL-codes: C67 D24 D57 L25 L60 L80 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2009-09-28
New Economics Papers: this item is included in nep-eff and nep-sbm
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Working Paper: The Icelandic Economy: A Victim of the Financial Crisis or Simply Inefficient? (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:cesisp:0199

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