Aggregate economic fluctuations and regional convergence: the Finnish case 1988-95

This paper analyses the connection between aggregate economic fluctuations and regional productivity convergence in Finland during the period 1988-95. Markov chain transition matrices and mobility indices were used to examine the regional distribution of productivity. The results indicated that high intra-distribution mobility occurred during booms, when regional convergence potential was also at its highest. Conversely, recession years were characterized by much lower mobility and a more divergent regional pattern. These findings bear important implications in terms of regional policy planning, as it seems that poor regions do not manage to keep up with the rich ones during slumps, whereas regional disparities diminish naturally during boom years.