2013 – The Finnish Divergence

Abstract

In this paper, we use the synthetic control method to analyze the Finnish economic performance after the onset of the Great Recession. Our main interest is to study the slow recovery from the global downturn that began in 2008. We identify the synthetic control with pre-crisis data (1996–2007). It provides the counterfactual response of the Finnish economy to the crisis in the absence of idiosyncratic shocks that affected Finland but not the synthetic control unit. We find that the Finnish GDP growth closely follows the synthetic control until 2013. After that there is a striking divergence in the economic growth of Finland and the expected economic behavior, as represented by the counterfactual. The divergence between the Finnish GDP and its synthetic control is mainly due to underperforming of the Finnish net exports. The consumption expenditures, on the other hand, outperform the synthetic control unit right after the financial crisis, but starting from 2013, they underperform as well. We find that our results are relatively robust to alternative methodological specifications.

Publication info

Series
ETLA Muistio - ETLA Brief 76
Date
06.02.2019
Keywords
Synthetic control method, Comparative case studies, Great Recession, European debt crisis
ISSN
2323-2463
JEL
E32, F43, F44
Pages
14
Language
English