Identifying promising exports clusters for Finland

Executive summary

Export diversification and sophistication are critical for Finland’s long-term growth. The report written by researchers from UTAK and Vienna Institute for International Economic Studies and published by Finnish Innovation Fund Sitra analyses the structural transformation and international competitiveness of Finnish goods exports. Moreover, the analysis focuses on new opportunities for exports growth and strategic industrial policy choices. Drawing on complexity economics, the report highlights that the diversification and sophistication of exports are key drivers of long-term economic growth and development.

Finland remains a complex economy, but its export complexity has declined. The report illustrates that at the global level Finland belongs to the group of complex economies. Nevertheless, the complexity of Finnish goods exports declined significantly between 2003 and 2023. The decline was more pronounced that in most European peer countries. This reflects structural changes such as the collapse of electronics exports. At the same time, Finland’s global market shares have continued to erode in key export sectors.

Finland has feasible opportunities to expand into more complex goods exports. Nevertheless, the report also provides some good news for Finland. There are possibilities to enter new growth areas and expand current knowledge-intensive exports. The empirical analysis of the report identifies feasible and desirable goods exports opportunities for Finland. The key idea of the study was to identify goods that are more complex than the current complexity of Finnish export goods basket and that are close or not too far from Finland’s current capabilities.

The report combines expansion and diversification strategies. Using the product space methodology, the report proposes two complementary strategies. The expansion strategy focuses on strengthening existing areas of comparative advantage. The diversification strategy aims to identify new export opportunities that are close to or not too far from Finland’s current capabilities but offer higher complexity. During the final stage of the analysis the potential goods exports were compiled into five clusters.

Policy recommendations

1. Prioritise realistic and “desirable” exports goods in industrial policy. Industrial policy may be most effective when it focuses on goods and clusters of goods that are both accessible from the perspective of a country’s current capabilities and that enable increasing export complexity.
2. Five clusters offer possibilities for industrial upgrading. The report identified five clusters for Finland: chemical inputs for industrial production, metal products, metalworking machinery, optical instruments, and measuring technologies.
3. Expand complexity analyses to service exports. The report focused on goods exports, but in future analyses, it is important to integrate services into analyses of export complexity and potential export clusters.