Economic flows between Helsinki-Uusimaa and Tallinn-Harju regions

Kansilehti Economic flows berween HU and TH regionsThe processes of regional integration have led to profound political and economic territorial reorganisation, especially in the European border regions. Two large and well-known border regions in Europe are Öresund region (Kopenhagen-Malmö-Skåne) and Centrope (the border regions of Austria, Slovakia and Hungary around Wien-Bratislava). While the Öresund region can be classified as a semi-integrated region with especially well developed and integrated science base and knowledge infrastructure, Centrope is still a rather weakly integrated region as a whole. Various integration processes – including tourism, business activities, migration, cross-border work, studying – have also taken place between Finland and Estonia generally, and especially between Helsinki-Uusimaa region (that refers to Uusimaa Region, including the Metropolitan area of Helsinki) and Tallinn-Harju region (Harju County, including the city of Tallinn), suggesting even the emergence of a twin-city. Studies covering this phenomenon are limited. The study has twofold objectives: to develop a framework of the integration process of cross-border regions and to estimate the magnitude of the main economic flows between Helsinki-Uusimaa and Tallinn-Harju regions.

Based on the analysis of statistical data we show that there is increasing cross-regional economic interaction between Tallinn-Harju and Helsinki-Uusimaa regions in terms of trade of goods and services, cross-border activities of enterprises, transport, tourism and cross-region work. Analyses of economic flows from tourism reveals, for example, that the estimated total effect of the Finnish tourists’ expenditure on the value added of Tallinn-Harju is EUR 240 million and that the contribution of Finnish tourism to the employment in Tallinn-Harju is a considerable 2,5–4 % of total employment. The total effect of Estonian tourists on Helsinki-Uusimaa is EUR 54 million (2011).

Cross-border work has increased considerably over the last 10 years, especially by the participation of Estonian workers in Helsinki-Uusimaa labour markets. The number of Estonians participating the Helsinki-Uusimaa labour markets was 17 500 – 18 500 in 2011. The part of earnings from Helsinki-Uusimaa shifted to Estonia has multiplicative effects via consumption and consequent chains in Estonia and according to estimations this causes a net increase of 200 – 300 million € to the value added in Estonia via direct and indirect effects.

Cross-border trade and production have also increased rapidly during the last 10 years, mainly influenced by the Finnish manufacturing enterprises having plants located to Estonia. There were about 440 Finnish subsidiaries in Estonia with total personnel of 27 000 and turnover of 3 900 million € in 2010. The number of personnel of Finnish firms represents about 5 % of total employment in Estonia.

Significant asymmetries in the present flows can be observed. The monetary flow of tourism is several times larger from Helsinki-Uusimaa to Tallinn-Harju than to other direction, and the volume of tourism from Finland to Tallinn is already approaching the saturation level. It is less-known that Estonian tourist visits to Helsinki-Uusimaa have grown very fast during the last 10 years even if the number and total expenditure is not as high as to the other direction. The growth is at least partly connected with increased migration from Estonia to Finland, generating demand for visiting family members, relatives and friends.
Another asymmetry is connected with cross-region work where the labor flow from Tallinn-Harju to Helsinki-Uusimaa is significantly larger than to the other direction. Estonian workers (permanent and short- time) have a crucial role in the labour markets of Helsinki-Uusimaa and the functioning of some industries is already to a large extent dependent on this flow. This situation contains a risk of shortage of labour in Tallinn-Harju and whole Estonia, at least in certain industries, like health services. In this case the asymmetry may lead to further imbalance on labour market. When we look at the cross-border activities of enterprises there is asymmetry to the other direction. The number of firms, personnel and turnover of Finnish firms in Estonia are of different order of magnitude than Estonian firms in Finland. The Finnish manufacturing companies utilize the business environment in Estonia, including lower salary level, good logistics connections, and lower corporation taxation and income taxation.

We conclude that current integration between Helsinki-Uusimaa and Tallinn-Harju resembles more the situation in Centrope than in Öresund. While the economic structures of both regions are service oriented with a high share of knowledge-intensive business services, the common science base and networking of knowledge infrastructure between the regions is rather weak. The economic relationships are still dominated by price and salary level differences rather than by symmetric interactive flows of knowledge and skills. At institutional level the administrative structures, legislation and business and administration cultures are quite far from each other. The physical proximity has improved in line with increased supply of ferry connections while there have been setbacks in air connections.

However, the active economic flows of tourism, cross-border work and cross-border trade and business may lead to deeper integration which benefits both regions. These micro level processes taking place at individual and firm level should be supplemented by institutional efforts. These include the development of cooperation between city and regional authorities and leading possibly to some model of governance dealing with common projects, e.g. transport systems, city planning and tourism. There is also need for harmonizing administrative processes and improving the quality of information concerning cross-border work and founding or purchasing an enterprise in neighbor country.

This report is part of the Helsinki-Tallinn Transport and Planning Scenarios project (H-TTransPlan), an ERDF project funded by Southern Finland-Estonia sub-programme of INTERREG IV A 2007–2013 Programme.

Figure: Economic flows connected with cross region work (case: job in Helsinki-Uusimaa, workers’ origin in Tallinn-Harju)

Kuvio economic flows connected with cross region work

Lue Economic flows between Helsinki-Uusimaa and Tallinn-Harju regions