Russian Food Import Ban - Impacts on Rural and Regional Development in Finland

Abstract

This paper investigates the economic effects of the food import ban that Russia imposed vis-à-vis the European Union in 2014 on the development of two structurally different rural regions in Finland. A detailed, rural-urban dataset was compiled for use with a recursive dynamic computable general equilibrium model. In the medium run, the overall economic effects of the trade ban were negative for both regions, and the value added of agriculture and food industries fell notably. When the rigidities of capital availability were relaxed, regional GDP and employment increased in South Ostrobothnia as, for instance, metal industry and construction accelerated economic growth. In North Karelia, where agriculture and food industry account for a minor share of economy, other industries could not compensate the losses the ban caused. Accordingly, the impacts were dependent on the economic structure of the region.