Cross-border economic cooperation and market integration: the impact of geopolitics on the Finnish economy

Abstract

Geopolitical events present significant risks of disrupting cooperation between countries. This becomes especially critical when one country develops a dependency on the other one that is directly involved in these events. That was the case of Finland and Russia, when the long-standing economic relationship and Finland’s dependency on Russia as a trade partner collapsed following the geopolitical escalation of 2022. This study combines a literature review and statistical analysis to examine trade patterns and economic indicators to address the following research question: “How have the recent geopolitical events affected the economy of Finland, and what opportunities do Russia and Finland face in potential future relations?” The thesis explores the historical relationship between the countries to establish how Finland dealt with geopolitical shifts in the past. The findings show that in 2022, Finland’s economy experienced notable setbacks such as high inflation, an energy crisis, and a trade deficit. The loss of access to the Russian market and energy sources exposed Finland’s vulnerabilities due to previous dependence. Despite the economic shock, Finland acted swiftly by diversifying trade partners and securing new energy suppliers. This helped to stabilise the economy and reduce future risks by breaking the dependence. The study also emphasises that future cooperation between the countries is possible and even desirable, following resolution of the current conflict.