Internationalization via export growth and specialization in Finnish regions

Abstract

Finnish regions increased their exports in special industries from 1999 to 2013. This internationalization of industries in regions is measured by the adjusted Balassa’s revealed comparative advantage index. It has been shown that innovation potential has not increased, even though R&D drives specialization and leads to an increase in exports and an improvement in trade balance. The growth of other intangible capital, such as organizational capital (management and marketing capital) and information and communication technology (ICT), has concentrated in the greater Helsinki area, but products and services are also targeted to domestic markets and depend on imports rather than promoting exports. The physical capital investment among the physical intensive firms has substituted imports rather than affecting exports. In a small open economy such as Finland’s, all these trends, together with foreign firms not being more export-oriented than domestic firms, call for a new industrial policy to promote R&D on a wide scale and continue regional specialization, thereby maintaining competitiveness and export growth.

Keywords:

• exports
• trade openness
• smart specialization
• R&D
• innovation

Subjects:

• R11
• O47
• F20
• O34
• J24

Public Interest Statement

Finland is knowledge intensive economy. Research and Development (R&D) is major driver of specialization of industries and exports. The growth of other intangible capital like organizational capital (management and marketing capital) and information and communication technology (ICT) has concentrated in greater Helsinki area, but products and services are also targeted to domestic markets and depend on imports. However, public incentives to support R&D should not be targeted only to the few very R&D intensive firms, as the R&D innovations have been productive on wider scale in all industries within the 20 regions considered. In a small open economy like Finland all these trends together with foreign firms not being more export oriented than domestic firms call for new industrial policy to promote R&D at wide scale and to continue regional specialization and thereby to maintain competitiveness and export growth.

Notes

1. The deep recession, with an 8% decrease in GDP in 2009, is also explained by collapses in the manufacturing of electronic equipment (mobile phone sales by Nokia) and the paper and pulp industry.

2. The RAS method is an iterative method of biproportional adjustment of input-output rows and columns; see UN Handbook, “Handbook of Input–Output Table Compilation and Analysis”, Studies in methods series F (New York: United Nations, 1999).

3. Depreciation rates are here 15% for R&D, 20–25% for OC (higher for services) and 33% for ICT.

4. For firms with an average of less than 1400 workers, firm observations i outside 5% and 95% distribution of the CD contributions are dropped. Additionally, firm i contributions that have a greater effect than 5% on total CD contribution of OC and ICT are dropped.

Additional information

Funding

The author received no direct funding for this research.

Notes on contributors

Hannu Piekkola

Hannu Piekkola is a professor of economics since 2017 and chairman of collegium in University of Vaasa in Finland and previously engaged in research institutes ETLA and PT. His research includes the analysis of factors for competitiveness of Finnish and European economies. He has extensive international co-operation in the field of IC and innovations, which is ongoing. International publications in referred journals are 24, of which 7 are joint with other researchers. Publications follow three overlapping thematic phases in his research career: taxation especially capital income and finance (1987–1995), labor market, R&D, productivity growth and performance-based pay (1995–2007) and his ongoing research on analyzing innovative activity using extensively community innovation survey CIS data with linked employer-employee data and IC (2007–). International networking and projects include INNODRIVE (FP7) (coordinator), AGIR (FP5), AHEAD (FP6), AIM (FP6) projects in Enepri network (www.enepri.org) and ActivAge (FP5) project.