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Aluminum and Icelandic GDP

According to recent research at the University of Iceland, direct contribution of the aluminum industry in Iceland has been around 2.9 percent of gross domestic production (GDP). This is the average percentage for the period 2007-2010. In this period, the contribution reached its maximum in the year of 2010, when it was 4.6% of GDP.


In her theses towards a MS degree in Economics at the University, Ms. Anna Guðrún Ragnarsdóttir describes how the aluminium industry has had a major influence on Iceland’s economy. The author explains how the aluminum industry can be divided into three different categories, regarding its contribution to the Icelandic GDP; direct contribution, indirect contribution and demand effects. The industry’s total contribution to the Icelandic GDP was calculated as the sum of direct and indirect contribution. The demand effects were not estimated in the thesis.

The direct contribution of the aluminum industry is estimated using a data set from Statistics Iceland. Estimating the industry’s indirect contribution was more complex. The aluminum sector now consumes almost 75 per cent of electricity generated in Iceland. When taking this part of the Icelandic energy industry into account, the total contribution of the aluminum industry to the Icelandic GDP is somewhat larger than the direct contribution, and the total contribution can be said to be 5.4-6.3 per cent annually (on average in the period 2007-2010). In 2010 this number was approximately 7.7-8.6 per cent.


In her thesis, Ms. Ragnarsdóttir explains how aluminum production first began in Iceland in the year 1969, with an output of barely 11 thousand tons annually. In the early 1990s the rate of production grew rapidly and today it is around 820 thousand tons annually. Two of the largest hydroelectric power stations in Iceland were constructed mainly to serve the aluminium industry. According to the thesis, the industry generates in total around 4,000 jobs in the country. However, almost all the aluminum products manufactured in Iceland are exported. Today, the aluminum products have approximately a 40 percent  share in the total export of goods from Iceland (which is more or less the same proportion as that of fish products).