Backward and forward linkages, specialization and concentration in Finnish manufacturing in the period 1995-1999

Abstract

This study focuses on industrial concentration and regional specialization in Finland in the late 1990s. Our results show increasing specialization and at least for some industries increased geographical concentration. Thus, there was no single process driving all industries in the same direction. Our results are in line with previous studies reporting increased regional specialization and industrial concentration in Europe (see e.g. Puga, 1999; Monfort and Nicolini (2000); Amiti, 1998; Niiranen, 1997 and 1999; and Koutaniemi, 2003).
In addition, our results suggest that the most concentrated industries benefit from high economies of scale or a high level of technology. We also examine the linkages in Finnish manufacturing industries. The most interesting outcome of the study is that the most concentrated industries were found to be more reliant on imports from other countries than on intra or inter industry linkages. This indicates that there was no ‘home-market effect’, meaning that upstream firms are located in areas where there are a relatively high number of downstream firms. This is a particularly interesting result, because linkages are at the centre of location theory (Venables, 1996; Krugman and Venables, 1995; and Tervo, 1999). It may however be that technological change and a shift in economic policy thinking towards research and development, with a focus on technology, and the gravitation towards international trade and collaboration played a more important role than industrial linkages in shaping industrial concentration patterns in Finland during the 1990s.