Iceland's Challenging Transition Towards a Knowledge-Based Economy : Sources of Inconsistencies Between Iceland’s Knowledge Based Policies and Progress

Abstract

This thesis deals with the role of knowledge as a basis for future economic growth in Iceland. It covers theoretical foundations to the concept of a knowledge based economy, its integration into public policy and indicators of knowledge intensities in an economic context.Through identifying knowledge based objectives in Icelandic government policies and applying various knowledge indicators to assess Iceland’s progress, its aim is to present the evolving state of several foundations essential to the country’s sustained long term economic growth. Further, it examines effects on such foundations brought by the 2008 financial crisis in Iceland and during its subsequent economic recovery.Its main findings are that aforementioned foundations remain relatively underdeveloped in Iceland, contrary to general discernment of Icelandic government policy objectives, and that their deterioration post-2008 was significant although not all-pervasive. The use of incomparable benchmarks for international comparisons until 2013/14 was found to have impeded R&D performance which, together with distorted incentives from supply and demand dynamics between the educational system and the labor market, served as hindrance to Iceland’s technological progress. A boom in labor intensive, lower-skilled service sectors post-2008 discouraged generation of higher-skill jobs in Iceland, whilst its more resilient manufacturing sector exhibited distinctly low yet improving technology levels.