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The Danger of a “Geyser Disease†Effect: Structural Fragility of the Tourism-Led Recovery in Iceland

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  • Francesco Macheda
  • Roberto Nadalini

Abstract

The fall of the Icelandic economy in 2008 highlighted the destructive effects of unbridled markets. Yet, in recent years Iceland’s annual growth rates have been significantly higher than those of the overwhelming majority of advanced capitalist countries. The aim of this article is to delve into the fragile foundations that the current Icelandic economic boom rests on. We argue that the impressive appreciation of the Icelandic króna, triggered by the rapid expansion of tourism, has made the rapid absorption of unemployment compatible with price stability during the recovery period. By restricting sources of international competitiveness, however, this tourism-led recovery strategy will render the current level of unemployment and real wages inconsistent with internal and external equilibrium in the long run. JEL classification : E24, F31, J24, O33, B51

Suggested Citation

  • Francesco Macheda & Roberto Nadalini, 2020. "The Danger of a “Geyser Disease†Effect: Structural Fragility of the Tourism-Led Recovery in Iceland," Review of Radical Political Economics, Union for Radical Political Economics, vol. 52(1), pages 50-76, March.
    • Handle: RePEc:sae:reorpe:v:52:y:2020:i:1:p:50-76
    DOI: 10.1177/0486613419867415
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    More about this item

    Keywords

    natural rate; wage; real exchange rate; high skilled; Marxian;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • B51 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Socialist; Marxian; Sraffian

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