natural-resource based products (mainly fish and fishery products), while the share for Finland was 97.6% (forest products and pulp/paper). Also Norway and Denmark were highly specialized in natural-resource based products; for Norway the share was
83.9%
(mainly metals, forest products and pulp/paper, and fish), and for Denmark 79.2% (agricultural products). Sweden too had a large share of natural-resource based products in 1961, 66.0%
(metals, forest product and pulp/paper). However, Sweden also had a substantial export of more advanced products such as machinery and transport equipment (25.4% of the export to the other OECD countries in 1961).
The imports to the Nordic countries in the beginning of the 1960s were far more differentiated than the exports, reflecting the fact that the composition of demand was much more differen-tiated than the structure of production. Intra-Nordic trade also had a far larger share of industrial products than the
13 With "other OECD countries" we mean OECD less the Nordic countries. This notion will be used throughout this chapter.
exports to the other OECD countries. At the outset this was especially important for Sweden and Denmark, which at that time were industrially the most advanced of the Nordic countries.
For instance 50.0% of Sweden's and 35.6% of Denmark's exports to the Nordic countries in 1961 consisted of machinery and transport equipment, and the Nordic market absorbed in both cases approximately one third of total Swedish and Danish exports of these products. For some "new" products the share of the Nordic market of total exports was even larger. For instan-ce, in 1961, the Nordic countries absorbed 44.4% of Swedish exports of pharmaceuticals, and 53.7% of Danish exports of consumer electronics.
5.4. DIFFUSION AND STRUCTURAL CHANGE 1961-1973: THE ROLE OF INTRA-NORDIC TRADE
Between 1961 and 1973, an extensive change in the traditional natural-resource based specialization pattern took place. The share of natural-resource based products in the Nordic countri-es' exports to the other OECD countries decreased from 78.6% to 60.0%, while the share of machinery and transport equipment doubled, from 14.7% to 28.7% Except Iceland, all Nordic countries took part in this development, but the changes were especially marked for Denmark and Norway. The structure of the Nordic countries' imports and mutual trade, which at the outset were less natural-resource based, changed too, but less
marked-ly than in the case of exports.
As discussed earlier on, diffusion (transfer of production) may be facilitated if the level and growth of demand for the pro-duct in the markets familiar to the producer are high. The Nordic market had a favourable effect in this respect because the demand structure was relatively advanced, i.e. Nordic consumers had already adapted their consumption patterns to a
large number of new products which initially had been introdu-ced in the United States, and because demand grew at a steady rate. However, for successful diffusion to take place, local producers must be able to compete favourably with competitors from the innovating country and other "early imitators". This means that there must exist local competitive advantages either in the form of customs or other trade restrictions, or in the form of norms on the demand side that the local producers are better placed to adapt to, or in the form of cost components
(such as transport costs) that are lower for local producers.
The Nordic market had several favourable features. First, all the Nordic countries were members of EFTA, which means that they to an increasing degree practiced free trade between themselves and towards other EFTA countries, but exercised some protection towards producers from the United states and the EEC. Second, common norms and mutually intelligible languages made it easy for Nordic producers to develop product variants which were considered attractive in the Nordic market. And thirdly, the geographical location of the Nordic countries (far away from the United states and the large European countries) provided an incentive to start local production in cases where transport costs were high.
To investigate the impact of intra-Nordic trade on the process
of transfer'~f production from the more advancedzyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBAD E C O countries - primarily the United states - to the Nordic countries in
this period, we shall consider more closely the development within ten selected product groups. These products have been chosen because they belong to the one third which increased
most in D E C O trade between 1961 and 1973 (see chapter 4), and
because they (with one exception, electrical household applian-ces14) have a high research intensity. What we should expect, given the assumption of a positive relation between diffusion and intra-Nordic trade, is the following:
1) The Nordic market should be important for Nordic producers, i.e. a large share of total Nordic exports should go to other Nordic countries, especially at an early stage of the diffusion process.
2) Nordic producers should cover a small share of the Nordic market at the beginning of the diffusion process, but this
share should soon start to increase.
3) Nordic market shares in the other D E C O countries should initially be at a low level, but should after a while start to increase.
14 The group of electrical household appliances was chosen because it includes many typical "American Way of Life" products that diffused from the United states to the Nordic countries in this period.