Economic Growth and the Swedish Model

We examine the growth performance of Sweden in the post-World War II period, focusing on explaining the relative decline of economic growth in Sweden since the early 1970s. The hypothesis that the relative decline is a consequence of productivity catch-up is rejected. A number of potential "ultimate" causes behind the slowdown are explored. An increasingly inefficient process of capital formation; a shrinking share of the economy being exposed to international competition; long-run negative effects of activist stabilisation policies; rapid growth of the public sector; deteriorating incentives for human capital formation; and weak incentives for implementing the results of R&D efforts are all part of the story. The evidence suggests that the incentive structure created by "the Swedish model" made Sweden less successful in adapting to the shocks of the 1970s and 1980s than other OECD countries.