Borders and Economy

Economic Development of Border Regions (5114119)

Heikki Eskelinen28 October 2013

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1. Border as a barrier

• Institutional border (typically a state border) is a barrier to (economic) interaction– control function– different legislation– customs tariffs, duties

• Basic research questions on cross-border economic interaction:– how high barriers are borders (in comparison to, e.g., distances)?– what happers if border-related barriers become lower (e.g, due to

integration and globalisation)?

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2. Interaction and disparities

• Volume and characteristics of cross-border interaction?

• Whether border regions are different or similar?

Cross-border interaction Border regions: production base, division of labour and stage of development?

Border regime

IntegrationHomogenisation or differentiation?

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”Integration effects” in border regions?

No general theory of ”borderregional economics”

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3. Bordering and de-bordering: initiating and challenging path dependency

• From a local/regional perspective: a change of a border regime (or transfer of a borderline) can be seen as a historical coincidence

• Bordering the economy, on whichever grounds, can have long-term term impacts on the formation of economic spaces, due to path dependent development trends

• Opening up of a border: a ”window of opportunity”, may result in a break-up with the past in the border region’s development path

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Figure 1. Location of the Finnish-Russian border. (Source: Pursiainen 2007,10)

4. The Finnish-Russian case

Several break-ups in the the development of the border regime, internally differentiated border regions on both sides

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Figure 2. Share of Russia and the USSR in Finnish foreign trade in 1860-2005, % (Ollus & Simola 2006, 16)

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5. Issues at stake

• How the border regime (in different historical periods) has contributed to specific development trends on the two sides of the border, and in different border regions in these countries?

Role of a border in initiating a regional development path? Peripheralisation of eastern Finland in a long termDifferent development trajectories in Russia related to changes in the border regime since 1990: St. Petersburg & Leningrad Region vis-a-vis Karelian Republic; whether they represent permanent lock-in situations or are only conditional and transitory?

Role of actors such as regional administrations and firms (human agency) in facilitating new development paths in border regions and localities?

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6. Eastern Finland

• From the mid-19th century: raw material -based industrialisation in southeastern Finland; Russian market important, diversified cross-border economic linkages

• After 1917: the border was closed; eastern Finland turned towards western European markets– accessibility of eastern Finland weakened in a international economy >

implications for the region’s production structure– the new border exacerbated the unfavourable impacts of changes in transport

infrastructure technologies on the regional economy

• After WW2: the transfer of the border (and people) had major negative implications of the regional economy; the bilateral economic connections did not allow the utilisation of geographical proximity– changes in the region’s spatial structure delayed, set constraints to industrial

restructuring and societal modernisation

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• After 1990: No rapid turn of main regional development trends - production structure oriented towards western Europe

- branch-plant structures limit context-specific strategies,- small companies face relatively higher border barriers

- spatial structure; no centres which would provide urbanisation economies

• However, since 1998/2000- economic activities, which benefit from geographical proximity

(migration, tourism, informal economy, logistical services for transit traffic) generate self-reinforcing dynamics; its impact is most visible close to border-crossing points and in a few centres along the main corridors

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An example: cross-border migration

• In Russia: emigration policy changed during the Perestroika:– 1985: 3000 emigration permissions; 1990: more than 100 000 – 1993 Constitution: general right to emigrate

• In Finland– Immigration policy towards Russia was established in the early 1990s when uncotrolled

migration was seen as a major threat > border-crossing requirements and border guarding were kept strict (no period of an more open border before the Schengen regulations)

– Russian citizens of Finnish descent were allowed to move to Finland (”as return migrants”)

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Russians and other foreign residents: 1990-2009

• Migrants usually classified according to their country of origin, citizenship or language

• Here: Russian-speaking residents in Finland

• 1990: 25 000 foreigners (0.5 % of the population); less than 4000 of them Russians (0.08 %)– ”foreigner” = mother tongue is not one of the official languages of Finland (Finnish,

Swedish, Sami)

• 2000: 100 000 (2 %), 28 000 (0,5%)

• 2009: 207 000 (4 %), 52 000 (1 %)

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Figure 1. Russian-speaking residents in Finland, % of the total population

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• Russians form the largest group of foreign residents

• Four main groups of immigrants (subject to different rules)– ethnic Finns (”return migration” of Ingrians)– immigration for employment (increasing)– immigration by marriage – students

• In addition, thousands of temporary (non-resident, seasonal) Russian workers; also from Estonia

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Regional distribution of immigration from Russia

Russian-speaking residents - urban/rural (40 % of Russian emigrants in the Helsinki region)- east/west (border effect discernible)

Share of Russian-speaking residents (NUTS5, 2008)28 October 2013_HE

Growth of Russian-speaking residents (NUTS 3), 1990-2009

Russian-speaking population of the total population, %

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An example: Russian shopping tourism

• From 1 million border crossings in the early 1990s to 12 million in 2012, with Russians constituting now over 80% of that figure

• mainly for shopping purposes, but also leisure tourism and second homes

• Russians spent € 1.2 billion in Finland in 2012 (2011: 0.86, 2010: 0.68 billion)– … looking for lower prices and/or

quality (tax-free)

• Significant investments in retail infrastructure pose challenges to the land-use planning system in the border regions

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(http://barentsobserver.com; rajaliikenne.fi)

7. St. Petersburg & Leningrad Region

• Reinventing the gateway

– the transition crisis more severe in St. Petersburg than in Russia on the average in the early 1990s (due to a distinctive industrial structure)

– more recently: the new borders of Russia have given a boost to the city’s gateway function; geopolitically and geo-economically a strategic position in the Russian Federation

– the surrounding Leningrad region has become an important industrial region, major investments in infrastructure

– neighbouring Finnish regions do not play a major role in development (except in transit traffic); the share of the whole Finland approximately 10-11 per cent in imports, exports and FDI until the 2008 crisis

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8. Karelian Republic: lock-in

• Before 1990: Specialisation in the forest industry in the regional division of labour in the USSR; main markets in European Russia

• Since 1990: Opening of the border had a major impact on the economy; export-orientation, mainly towards Finland; drastic deindustrialisation which was affected by the new border regime (equalisation of raw material prices); a turn towards production of raw materials and low-value added goods for exports; this situation has had implications for the regional political regime

• ”Development trap”; lock-in an inefficient trajectory

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• Breaking the lock-in situation: is an external shock needed?

• Russia’s geopolitical strategy: export duties, WTO membership

• A local escape seems possible in one company towns: the leading company may benefit from new activities from abroad (the case of Kostamuksa); self-reinforcing processes and differentiation

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9. Discussion

• Development processes in border regions have to be seen as an integral part of regional economic evolution (which is generally characterised by path dependence)

• Develoment patterns of the regions along the Finnish-Russian border since 1990– in Finland: geographical proximity matters in several cross-border economic processes – In comparison to Finland, impacts of the regime change on regional development

patterns more important on the Russian side, but highly differentiated development trends

– Karelian Republic: the new border regime has not boosted economic growth– St. Petersburg: its influence has been combined with other factors (integration into the

global economy, largely bypassing neighbouring regions in Finland; although due to the scale effect, it is of growing importance for Finnish regions)

– In escaping lock-in situations, company strategies important, and may provoke new development paths at a local level

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References & further reading

• Alanen Aku (2006), "Etelä-Suomi ja rajamaakunnat vetävät venäläisiä." Tieto & trendit 3, pp.58-61.• Druzhinin, Pavel (2001), “Dutch disease of Karelia: challenges of the wood-processing industry in the border area” In:

Hytönen, M. (ed.) Social sustainability of forestry in northern Europe: research and education, 151-160. Copenhagen: TemaNord 2001:575, Nordic Council of Ministers.

• Eskelinen, Heikki & Fritsch, Matti (2006), "The Reconfiguration of Eastern Finland as an Interface Periphery." In: Eskelinen, Heikki & Timo Hirvonen (ed.) (2006), Positioning Finland in a European Space. Helsinki: Edita.

• Heikki Eskelinen, Ilkka Liikanen & James Scott (eds.) (2013), The EU –Russia Borderland: New Contexts for Regional Co-operation. Routledge. 238 p.

• Liikanen, Ilkka, Dmitry Zimin, Juha Ruusuvuori & Heikki Eskelinen (2007), Karelia - A Cross-Border Region. The EU and cross-border region-building on the Finnish-Russian border. University of Joensuu, Publications of the Karelian Institute N:o 146. Joensuu.

• Niebuhr, A. & S. Stiller (2004) "Integration Effects in Border Regions - A Survey of Economic Theory and Empirical Studies", Review of Regional Research 1, 3-21.

• Ollus, Simon-Erik & Heli Simola (2006), Russia in the Finnish Economy. SITRA Reports 66. Helsinki. • Pursiainen, Christer (2007), Russia between integration and protectionism: International road, ports and the forestry sector.

Nordregio WP 2007:2. Stockholm: Nordregio.• Rietveld, Piet (2001), Obstacles to Openness of Border Regions in Europe. In: van Geenhuizen, Marina & Ratti, Remigio

(eds.), Gaining Advantage from Open Borders. An Active Space Approach to Regional Development. Aldershot: Ashgate. • Zimin, Dmitry (2008), “Geopolitics of Russian Border Regime” In: Okuda, Hiroshi & Jarmo Kortelainen (eds.), Russian Border

Regions from the Perspective of Two Neighbours, 134-147. Sapporo: Center for Development Policy Studies, Hokkai-Gakuen Uni versity

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