DENMARK

The Danish advantage

What makes the Danish economy so successful?

 Aspects about history

 Factors that contributed to development/poverty
 Institutions (Worlwide Governance Indicators from the World Bank,
http://info.worldbank.org/governance/wgi/ )
 Human Development (Index)
Andersen, Torben M. et al. The Danish Economy: An international Perspective. Copenhagen: DJØF
Publishing, 2001.

Henriksen, Ingrid. “Freehold Tenure in Late Eighteenth-Century Denmark.” Advances in Agricultural

Economic History 2 (2003): 21-40.

ohansen, Hans Chr. Danish Population History, 1600-1939. Odense: University Press of Southern Denmark,
2002.

https://hdr.undp.org/sites/default/files/Country-Profiles/DNK.pdf

Danish households are the richest in the European Union, according to a

data analysis by the country’s central bank. 

The average household in Denmark had 1.88 million Danish krone

($300,000) in financial assets as of the fourth quarter of 2020. 

1. Aspects about history

Denmark is one of the most competitive economies in the world. Although
it’s small, it is one of the most stable economies in the EU.
The reasons that make Denmark’s economy so successful are a very
developed infrastructure, an efficient workforce and an advanced welfare
system. Moreover, Denmark is among the world leaders in wireless
communications, internet and new media.
With a modern economy that is well integrated into the global marketplace, Denmark has
been a member of the European Union since 1973.

The first of the Nordic countries to do so, Denmark joined the European

Economic Community (EEC; ultimately succeeded by the European
Union [EU]) in 1973, at the same time as the United Kingdom, then its most
important trading partner. Long-standing economic collaboration between
Denmark and the other Nordic countries—including those that have not
joined the EU—also continues today. Uniform commercial legislation in the
Nordic countries dates to the 19th century.
In the Danish mixed welfare-state economy, private
sector expenditures account for more than half of the net national income.
Public expenditure is directed primarily toward health and social services,
education, economic affairs, foreign affairs, and national defense. The
government does not have significant commercial or industrial income.
Denmark's long-term economic development has largely followed the same pattern as other
Northwestern European countries. In most of recorded history Denmark has been an agricultural
country with most of the population living on a subsistence level. Since the 19th century Denmark
has gone through an intense technological and institutional development. The material standard
of living has experienced formerly unknown rates of growth, and the country has been
industrialized and later turned into a modern service society.

2. Prerequisites of Growth. Factors that contributed to

development.
Throughout history a number of advantageous factors have shaped the Danish economy. From this
perspective it may not be surprising to find today’s Denmark among the richest societies in the world. 

One interpretation could be that favorable circumstances, rather than ingenious institutions or policies,
have determined Danish economic development.

Denmark’s geographical location in close proximity of the most dynamic nations of sixteenth-
century Europe, the Netherlands and the United Kingdom, no doubt exerted a positive
influence on the Danish economy and Danish institutions.

Reform and International Market Integration, 1750-1870

The driving force of Danish economic growth, which took off during the late eighteenth century was
population growth at home and abroad – which triggered technological and institutional innovation. Like
elsewhere in Northern Europe, accelerating growth can be ascribed to a decline in mortality, mainly child
mortality. Probably this development was initiated by fewer spells of epidemic diseases due to fewer
wars and to greater inherited immunity against contagious diseases. Prices rose from the late eighteenth
century in response to the increase in populations in Northern Europe, but also following a number of
international conflicts. This again caused a boom in Danish transit shipping and in grain exports.

In 1849 absolute monarchy was peacefully replaced by a free constitution. The long-term benefits of
fundamental principles such as the inviolability of private property rights, the freedom of contracting and
the freedom of association were probably essential to future growth though hard to quantify.

Modernization and Convergence, 1870-1914

During this period Danish economic growth outperformed that of most other European
countries. Denmark became a net importer of foreign capital from the 1890s and foreign debt was well
above 40 percent of GDP on the eve of WWI. Overseas emigration reduced the potential workforce but as
mortality declined population growth stayed around one percent per annum. The increase in foreign
trade was substantial, as in many other economies during the heyday of the gold standard. The driving
force of growth was that of a small open economy, which responded effectively to a change in
international product prices, in this instance caused by the invasion of cheap grain to Western Europe
from North America and Eastern Europe. Like Britain, the Netherlands and Belgium, Denmark did not
impose a tariff on grain, in spite of the strong agrarian dominance in society and politics.
Industrialization in Denmark took its modest beginning in the 1870s with a temporary acceleration in the
late 1890s. It may be a prime example of an industrialization process governed by domestic demand for
industrial goods. Industry’s export never exceeded 10 percent of value added before 1914, compared to
agriculture’s export share of 60 percent. The export drive of agriculture towards the end of the
nineteenth century was a major force in developing other sectors of the economy not least transport,
trade and finance.

Weathering War and Depression, 1914-1950

Denmark, as a neutral nation, escaped the devastating effects of World War I and was even allowed to
carry on exports to both sides in the conflict. The ensuing trade surplus resulted in a trebling of the
money supply. As the monetary authorities failed to contain the inflationary effects of this development,
the value of the Danish currency slumped to about 60 percent of its pre-war value in 1920. The effects of
monetary policy failure were aggravated by a decision to return to the gold standard at the 1913 level.
When monetary policy was finally tightened in 1924, it resulted in fierce speculation in an appreciation of
the Krone. During 1925-26 the currency returned quickly to its pre-war parity. As this was not
counterbalanced by an equal decline in prices, the result was a sharp real appreciation and a subsequent
deterioration in Denmark’s competitive position (Klovland 1997).

The policy mistakes during World War I and its immediate aftermath served as a lesson for policymakers
during World War II. The German occupation force (April 9, 1940 until May 5, 1945) drew the funds for its
sustenance and for exports to Germany on the Danish central bank whereby the money supply more than
doubled. In response the Danish authorities in 1943 launched a policy of absorbing money through open
market operations and, for the first time in history, through a surplus on the state budget.

Economic reconstruction after World War II was swift, as again Denmark had been spared the worst
consequences of a major war. In 1946 GDP recovered its highest pre-war level. In spite of this, Denmark
received relatively generous support through the Marshall Plan of 1948-52, when measured in dollars per
capita.

From Riches to Crisis, 1950-1973: Liberalizations and

International Integration Once Again
The growth performance during 1950-1957 was markedly lower than the Western European average. The
main reason was the high share of agricultural goods in Danish exports, 63 percent in 1950. International
trade in agricultural products to a large extent remained regulated. Large deteriorations in the terms of
trade caused by the British devaluation 1949, when Denmark followed suit, the outbreak of the Korean
War in 1950, and the Suez-crisis of 1956 made matters worse. The ensuing deficits on the balance of
payment led the government to contractionary policy measures which restrained growth.

Denmark’s relations with the EU, while enthusiastic at the beginning, have since been characterized by a
certain amount of reserve. A national referendum in 1992 turned down the treaty on the European Union,
the Maastricht Treaty. The Danes, then, opted out of four areas, common citizenship, a common
currency, common foreign and defense politics and a common policy on police and legal matters. Once
more, in 2000, adoption of the common currency, the Euro, was turned down by the Danish electorate. 

From Agricultural Society to Service Society: The Growth of the

Welfare State
Originally social welfare programs targeted low income earners who were encouraged to take out
insurance against sickness (1892), unemployment (1907) and disability (1922). The public subsidized these
schemes and initiated a program for the poor among old people (1891). The high unemployment period in
the 1930s inspired some temporary relief and some administrative reform, but little fundamental change.
Denmark at the beginning of the twenty-first century in many ways fits the description of a Small
Successful European Economy according to Mokyr (2006). Unlike in most of the other small economies,
however, Danish exports are broad based and have no “niche” in the world market. Like some other
small European countries, Ireland, Finland and Sweden, the short term economic fluctuations as
described above have not followed the European business cycle very closely for the past thirty years
(Andersen 2001). Domestic demand and domestic economic policy has, after all, played a crucial role
even in a very small and very open economy.

3. Human Development Index

Denmark’s HDI value and rank Denmark’s HDI value for 2019 is 0.940— which put the country in the
very high human development category—positioning it at 10 out of 189 countries and territories.
Between 1990 and 2019, Denmark’s HDI value increased from 0.806 to 0.940, an increase of 16.6
percent. Table A reviews Denmark’s progress in each of the HDI indicators. Between 1990 and 2019,
Denmark’s life expectancy at birth increased by 6.0 years, mean years of schooling increased by 3.7
years and expected years of schooling increased by 4.8 years. Denmark’s GNI per capita increased by
about 54.3 percent between 1990 and 2019.