Currency gifts, convergence and divergence in two neighbouring economies : draft

Abstract

Currency gifts have proven to be a mixed blessing, as positive income shocks are often followed by financial problems and slow economic growth rates. Norway has twice been granted significant currency gifts: Firstly, through Britain’s huge demand for merchant fleet services in the nineteenth century, secondly, by the exploration of petroleum reserves during the last decades. Sweden has never gained currency gifts at the same scale. This paper offers an examination of the effects of currency gifts on these neighbouring small open economies by mapping relative wealth and seeking to examine patterns of convergence and divergence.