Finland’s Path to the Global Productivity Frontier through Creative Destruction

The marked acceleration of Finnish productivity growth since the mid-1980s is attributable to intensifying creative destruction, understood as the joint effect of market entry and exit as well as resource reallocation between continuing plants and firms. This acceleration coincided with the economy-wide deregulation, liberalization, and the opening up of Finland, which provided new incentives and opportunities, thus enabling individuals and businesses to capitalize on intangible capital accumulated via sustained investment since World War II. The “Nokia effect” was particularly important in the latter half of the 1990s, but productivity enhancing restructuring has been more widespread. Developments in Finland are contrasted to those in Japan, Sweden, and the United States.