The Micro-level Sources of Regional Productivity Growth in Finland

In this study, productivity growth of the Finnish regions is decomposed by using plant-level data from 1975 to 1999. The results show that there was an extremely strong performance in terms of labour and total factor productivity growth in the province of Oulu during the 1990s and an increasing part of the productivity growth in the province of Oulu can be explained by the reshuffling of the input shares among incumbent plants. The evolution of the so-called ”between component” of aggregate productivity growth is therefore the key to the understanding of the recent surge in productivity growth in certain regions of Finland. We further show that the acceleration of productivity growth through plant level restructuring has entailed compression of productivity dispersion between plants within regions. We examine factors behind productivity-enhancing restructuring as well. There seems to be evidence that exports stimulate productivity-enhancing restructuring at the plant level of the Finnish regions.