The Effects of Currency Depreciation on the Exporting Industry: A Comparative Study between Swedish and Finnish Forest Industry Exports

Abstract: In autumn 2008 the SEK depreciated heavily against the euro at the same time as a divergence of export patterns between Sweden and Finland occurred, particularly in the forest industry. Sweden was hit less by the concurrent recession than Finland and since the nations are structurally similar in everything except that Sweden is not part of the EMU the depreciation has been believed to be the cause. This paper aims to explore the consequences of the depreciation for the Swedish forest industry relative to the Finnish by looking at the links between them: the cost competitiveness and the pass-through of the depreciation to importers’ prices. It uses a qualitative method, investigating if changed competitiveness caused the lesser fall for Swedish exports, if exchange rate pass-through was present and if there are any grounds to the beggar-thy-neighbour argument. We conclude that Sweden’s competitiveness increased compared to Finland but it is not clear if this caused the divergence in exports or the production shift.