The effects, since the autumn of 2008, of the financial crisis however clearly indicate the need for regionally adapted strategies to handle the significant variations in the challenges faced by individual Nordic regions. This is one of the major conclusions to be drawn from the latest edition of The Nordic Regional Development Report, published by Nordregio this autumn.
Strong economic performance
From the middle of the1990s until the financial crash in 2008 the global economy went through a period of exceptional growth, with Asia in the van. During this period, economic development in the Nordic Countries, as in many other advanced economies, became increasingly dependent on innovation and knowledge-related growth, as material investments decreased, while immaterial investments in human capital, R&D, education, organisational development and 'branding' became more valuable.
Most Nordic countries saw economic development above the EU average, with Iceland at the top and Denmark slightly below the EU average. In terms of welfare, measured as GDP per capita in PPS, 80% of the Nordic regions reached a level above the EU average. Only 60% of the regions however scored higher in terms of productivity per employee, indicating a potential for further development.
The economic development of regions is closely linked to the development of a competitive business sector, the supply and demand of human resources and a well functioning labour market. When combining total population change, the level of employment and economic performance, large variations emerge between the Nordic regions. The capital regions, together with some larger city regions, are performing well, while a negative level of development is to be found in many rural areas.
Challenges posed by the financial crisis
The global financial crisis beginning in the autumn of 2008 posed significant new challenges to the Nordic countries. The situation has been particularly severe in Iceland, where three of the largest banks collapsed, leading to a rapid depreciation of the currency and a severe downturn in the Icelandic economy.
The crisis resulted in a rapid increase in the European unemployment rate. In 2009, the annual average unemployment rate of the EU27 was 8.9%. Among the Nordic countries, Iceland, Sweden and Finland were especially hard hit. Iceland suffered the most dramatic change in unemployment. Before the crisis, the country had the lowest unemployment rate in Europe. Since then, the level of unemployment has risen to around 8%. In Denmark, the unemployment rate almost doubled, but still remained well below the EU27 average. Norway had the lowest unemployment rate in Europe in 2009 (3.1%).
The economic decline is also shown in trade statistics and many Nordic regions dominated by export-orientated manufacturing industries were hit hard by the crisis. The most striking example was Finland, were the volume of exports shrunk by 20% and imports by 18%. Norway had the least negative growth; probably due to the stable situation of the petroleum market. At a regional level, Finnish regions relying on the paper and pulp industry were heavily hit and West Sweden experienced a significant negative change due to the downturn in the automobile industry. In regions more dependent on services and on public sector employment, the effects of the crisis have, hitherto, been more limited.
As a result, there are substantial regional differences in terms of unemployment. The lowest figures (below 2%) are found in most municipalities in Norway and in the Finnish region of Åland, and the highest figures (above 14%) are found in northern Swedish and Finnish municipalities, in Nordjylland (Denmark) and Trollhättan (Sweden). In Denmark, Iceland and Norway, regional differences are smaller.
In 2010 the global economy was still recovering after the crisis. During the first quarter of the year GDP expanded at an annual rate of over 5%. With strong public finances, Nordic economies, with the exception of Iceland, have been able to lend strong support to the financial sector and were among the first economies to recover.
Migration and ageing
All across Europe, we can see a trend towards an ageing population. Significant differences exist, however, between the European Union and the Nordic age structures. Compared to the EU27 average, the age group 60-64 years is significantly larger in the Nordic countries, while the age group 20-54 years is slightly smaller. At the same time, the Nordic countries have, in general terms, high birth rates and a larger share of children aged 0-19 years than the European average.
Most Nordic municipalities gained from international migration in the period 2005-2009. However, in Denmark, Norway and Sweden the overall level and share of international migration was much higher than in Finland. During this period, the Nordic countries saw a modest population growth of approximately 0.67% per annum, which was above the average EU growth of 0.40% per annum.
At the national level, Denmark, Finland and Sweden saw a population increase close to the EU average, while Norway had an annual growth rate above 1%. In Iceland, a rapid population increase was turned into a decrease as a result of the crisis in 2008, and in the autonomous regions population growth was negative (Greenland) or low (Faroe Islands).
Looking at the population structure by age and gender, regional variations remain. A common trend here is that the population in urban areas is younger than in rural and sparsely populated areas. Generally speaking, the city regions also have the highest share of female population, while in small and medium-sized towns and some more rural regions, especially in West Norden, males predominate.
Knowledge, a skilled labour force and research
In a globalised world, knowledge is becoming an increasingly important factor for innovation and regional competitiveness. A high level of education among the labour force, access to a high quality school system and investments in research and development (R&D) are important resource bases for innovation and development. From a broader European perspective the innovation potential of the Nordic countries is thus quite high.
The Nordic labour market has a highly skilled labour force boasting the highest levels of 'population with a tertiary education' in Europe at the regional level. When it comes to 'life-long learning', the tendency is similar and all Nordic countries have figures well above the EU27 average of 9%, with Finland (29%), Denmark (20%) and Sweden (18%) at the top. Skilled workers tend to be more productive, less exposed to unemployment; more satisfied with their professional lives and they retire at an older age. Nevertheless regional variations remain as higher education is clearly concentrated to the metropolitan areas in the Nordic countries.
The level of education and the quality of the entire educational system are crucial elements in the construction of a skilled labour force. Therefore, many of the measures designed to counter unemployment in the Nordic countries have focused on education and training. It is also crucial to provide a well-functioning infrastructure and new investment in transportation, housing and education to attract people to, and maintain them in, a region.
In 2008, the five Nordic countries had the highest public R&D expenditure as a share of GDP in the EU, with Iceland top. Finland, followed by Sweden was ranked highest in terms of private sector R& D expenditure.
Drivers of innovation
A high level of tertiary education or research expenditures may not however be enough to stimulate innovation and development. There is also a need for mechanisms to stimulate the exploitation of new ideas, the commercialisation of academic research and the transfer of different types of knowledge between the public and private sectors. Firms delivering knowledge-intensive business services (KIBS) have a key role here as integrators of knowledge from various parts of the innovation system.
A strong national and regional entrepreneurship culture is another mechanism that indicates a higher potential to create growth in established or new firms. In a global comparison the Nordic countries have not been found to be among the highest performers in terms of new start-up activities. There are, however, large variations between countries, regions and sectors.
While, on average, 58% of all students are female, the levels of self-employed women in the Nordic countries remained relatively stable at around 30% between 2002 and 2008. To increase this figure further emphasis has been placed on supporting the development of women entrepreneurs. This relates both to women's position in society and to the general importance of entrepreneurship in the development of economic growth. All of the Nordic countries, except Iceland, have a programme or an action plan with the aim of supporting women's entrepreneurship.
High on energy
The climate change measures taken in the Nordic countries highlight different institutional approaches to climate change adaptation. While Finland considers sectoral adaptation strategies, Denmark and Sweden emphasise the role of local or regional actors in carrying out climate change adaptation efforts. The Nordic countries are committed to further reducing greenhouse gas emissions by increasing their share of energy production from renewable sources.
Despite the fact that the Nordic countries are generating only moderate emissions of greenhouse gases compared to other developed countries of a similar size, due to their lower dependency on fossil fuels, their consumption of energy per capita is among the highest in the world.
Relatively high heating costs, due to the cold climate combined with a sparse population distribution pattern, a greater need for individual transportation, the presence of heavy process industries plus generally high levels of income, are some of the factors behind this high level of energy demand. In spite of the continuous economic growth in the region, however, the demand for energy has remained stable over the last ten years.
The most important energy sources for the Nordic countries, in order of importance, are oil, renewable energy sources (mainly hydro-, geothermal and wind energy), nuclear power, coal and gas.
Increasing cross border integration
Since the first Nordic commuter map was presented in 2001, cross-border commuting has steadily increased. In 2006, a total of 44 000 individuals were classified as cross-border commuters. Commuting from Sweden to Denmark or Norway is the major commuter flow, making up 75% of total cross-border commuting traffic. Norway has by far the largest number of in-commuters, followed by Denmark.
This report is the twelfth volume in the series "Regional Development in the Nordic Countries", which has regularly supplied practitioners with a comprehensive analysis of the Nordic regional development scene. It is a summary report, with the ambition of widening the diffusion of results from recent or ongoing research and analysis projects. Overall, input from more than twenty different projects has been used in its production.