The Finnish Depression: From Russia with love

Linda Tesar (), Enrique Mendoza and Yuriy Gorodnichenko

No 549, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: During the period 1990-93, Finland experienced the deepest economic downturn in an industrialized country since the 1930s. We argue that the collapse of the Finnish trade with the Soviet Union in and of itself resulted in a large contraction of the economy and a costly restructuring of the manufacturing sector, similar to the transition suffered by countries in Eastern Europe. Interestingly, Finland and transition countries experience almost identical “U-shaped” dynamics of output in the early 1990s. Finland experienced the full force of the Soviet trade shock, but as a western democracy with fully developed capital markets and a well-functioning legal and political system, faced none of the institutional adjustments experienced in the formerly centrally-planned economies. Thus, by studying the Finnish experience it is possible to separate the adjustment costs due to the collapse of trade from the other burdens of adjustment borne by transition economies. Importantly, unlike previous analyses of depressions, we have an exogenous shock with known timing. We develop and calibrate a multi-sector model of the Finnish economy and show that the collapse of Soviet-Finnish trade can indeed explain a bulk of the recession in Finland. We draw a number of policy implications.

Date: 2008
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed008:549

Access Statistics for this paper

More papers in 2008 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().