2013 – The Finnish Divergence

Jetro Anttonen, Tero Kuusi, Markku Lehmus and Seppo Orjasniemi

No 76, ETLA Brief from The Research Institute of the Finnish Economy

Abstract: Abstract In this paper, we use the synthetic control method to analyze the Finnish economic performance after the onset of the Great Recession. Our main interest is to study the slow recovery from the global downturn that began in 2008. We identify the synthetic control with pre-crisis data (1996–2007). It provides the counterfactual response of the Finnish economy to the crisis in the absence of idiosyncratic shocks that affected Finland but not the synthetic control unit. We find that the Finnish GDP growth closely follows the synthetic control until 2013. After that there is a striking divergence in the economic growth of Finland and the expected economic behavior, as represented by the counterfactual. The divergence between the Finnish GDP and its synthetic control is mainly due to underperforming of the Finnish net exports. The consumption expenditures, on the other hand, outperform the synthetic control unit right after the financial crisis, but starting from 2013, they underperform as well. We find that our results are relatively robust to alternative methodological specifications.

Keywords: Synthetic control method; Comparative case studies; Great Recession; European debt crisis (search for similar items in EconPapers)
JEL-codes: E32 F43 F44 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2019-02-06
New Economics Papers: this item is included in nep-eec and nep-mac
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