Prospects of Finnish regional development under EMU and deepening integration

Marko Ovaskainen ()

ERSA conference papers from European Regional Science Association

Abstract: Deepening integration and EMU will bring about different economic benefits and costs, which will be unevenly distributed between regions. In order to form an optimum currency area, the economic structures of regions should be similar and diversified enough to enable them to avoid large-scale asymmetric shocks. However, if the regions are structurally very different, there is a risk of these shocks, especially in the structurally most different, non-diversified and often economically weak areas. The risk will further increase if EMU leads to increasing and deepening regional specialisation. Within EMU the adjustment mechanisms of the economy are more limited than before, as the members of the monetary union do not have independent monetary policy. Fiscal policy is also controlled by different criteria and sanctions, and its ability to support the development of the weaker regions is limited. Therefore, the role of labour market flexibility and labour mobility as shock absorbers increases, although they both have traditionally been relatively low in Europe. Thus the future of regions under EMU is not without threats, and despite all the potential benefits of EMU, there is a risk of regionally imbalanced development. Regional differences in Finland are quite remarkable in terms of economic and production structures, production level, employment, economic sensitivity etc. The objective of the paper is to estimate the impacts of integration and EMU on the development of the Finnish regions. The main theoretical starting points are the theories of regional economic development and optimum currency area. The empirical part of the paper concentrates on a statistical analysis of the Finnish regional production and differences in the regional economic structures. The purpose of this analysis is to estimate the sensitivity of different regions, and analyse the potential benefits and costs under EMU. The analysis is mainly carried out at NUTS 3 level (provinces of Finland). The major indicators include production structure, export base, and entrepreneurship (number of SMEs). The paper also provides indices which describe the structural similarity of regional production compared to the average of Finland and potential EMU countries. The paper also tries to identify the special features and assess the competitiveness of different regions, also with an objective to find possible proposals on how to promote their development. Although the paper concentrates on the prospects of Finnish regions, the topics are also relevant from a wider European perspective.

Date: 1998-08
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Persistent link: https://EconPapers.repec.org/RePEc:wiw:wiwrsa:ersa98p90

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