Oil and Reforms – Shaping the Significance of Russia for Finnish Business

We examine the significance of Russian markets for Finnish business. After analysing Russia’s economic structures we evaluate and use econometrics to explain the development of Finnish exports there. If all re-exports are removed from export statistics, Russia’s share in Finnish goods exports was about 8 per cent in 2007–2013.The share recovered fully from its decline in 2009. However, Finland’s share in total Russian imports has been declining, and particularly so during the past few years. The trend has been similar to the trend in Finland’s share in world trade. This indicates that the reason is a general decline in product-related and price competitiveness of Finnish exports. Relative to all Finnish exports, the exports to Russia of output manufactured in Finland is more specialised in final goods for households and investments than in intermediate goods. Even though the exported output is mainly produced by manufacturing industries, a considerable part of the exports of value added is produced by service sectors. Russia’s WTO membership supports Finnish exports, but many other factors will tend to suppress Russia’s future GDP growth more than has been the case during the past decade. The impact of crude oil price fluctuations on Russia’s economy is particularly large. International openness and market-oriented reforms would be the best and most sustainable way to support economic growth in Russia, and Finnish exports there.