Innovations, International Trade and the Green Transition as Drivers of Finnish Economic Growth

This brief examines the links between research and development (R&D), innovation, international trade, and the green transition in Finland. The findings are based on a Business Finland-funded research project analyzing export demand shocks, firms’ innovation activities, and the effects of environmental policies on Finnish companies. The studies focusing on international trade show that Finland’s global export market share has declined over recent decades due to weak performance and an unfavorable export product structure. At the same time, positive export demand shocks increase firms’ patenting activity and product innovation, whereas negative shocks reduce innovation activity and exports. These findings underline the importance of international trade for firms’ innovation incentives and long-term economic growth. The studies related to the green transition and climate change objectives demonstrate that firms’ own R&D investments, together with R&D spillover effects within industries, are associated with lower greenhouse gas emissions. In addition, the EU Emissions Trading System (EU ETS) has not significantly weakened firms’ competitiveness; instead, it has increased process and product innovation while improving energy efficiency. The results suggest that well-designed environmental policies can simultaneously support emission reductions and innovation.