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Opening Economy and Regional Development - Comparative Advantage and Agglomeration Forces as Location Factors in Finland


  • Widgrén, Mika
  • Kotilainen, Markku
  • Nikula, Nuutti
  • Kaitila, Ville


The study examines the developments in production structures in Finnish regions and the differences in regional income levels and the causes that affect them in an integrating global economy as well as the challenges facing regional policies. The increasing openness of the world economy, the increasing competition it causes and its effect on Finlands regions is the central task of this study. We combine the classical theory of international trade based on comparative advantage about the specialisation of countries with the approach of the new economic geography and agglomeration forces about the specialisation of regions inside countries. The study is a pioneer in Finland because similar analysis of regional production structures and specialisation has not been done before. We find that the so-called agglomeration forces drive the location of production in Finland. These regional agglomeration forces are the economic size of the region and closeness to markets (so-called market potential), distance between companies producing intermediate and final products, scale effects, and the educational level and R&D activities. Centralisation of production also requires that workforce is willing to relocate and that the productivity growth in core areas is faster than on average. Because labour mobility is such a central requirement for production agglomeration the study also examines migration within Finland in the past 50 years. For regional policies the conclusion of the study is that agglomeration forces should not be constrained if they lead to and are caused by faster productivity growth in core regions. In Finland there are significant differences in public sector services per capita in different regions so that regions with low wage and tax revenues have more public sector services in per capita terms than the core regions. This means that it is very hard to stop migration flows using the community tax equalisation scheme.

Suggested Citation

  • Widgrén, Mika & Kotilainen, Markku & Nikula, Nuutti & Kaitila, Ville, 2007. "Opening Economy and Regional Development - Comparative Advantage and Agglomeration Forces as Location Factors in Finland," Discussion Papers 1113, The Research Institute of the Finnish Economy.
  • Handle: RePEc:rif:dpaper:1113

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    References listed on IDEAS

    1. Jan Erik Askildsen & Espen Bratberg & Øivind Anti Nilsen, 2005. "Unemployment, labor force composition and sickness absence: a panel data study," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1087-1101.
    2. Christopher J. Ruhm, 2000. "Are Recessions Good for Your Health?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 617-650.
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    More about this item


    egional economy; agglomeration forces; comparative advantage; new economic geography;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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