What do border obstacles cost the Nordic region?

The report was presented at a conference on border obstacles held at the Swedish parliament in Stockholm on 30 November. Among the participants were two Nordic ministers, the Forum on Border Obstacles and a range of organisations which are working with the issue.  

Copenhagen Economics is a counselling agency staffed by economists specialising in advising businesses, authorities and politicians on issues where the market meets regulations. Their chosen method to analyse the problem is the same which is being used within the EU to compare how well different regions are functioning.

The conclusions drawn for the Nordic region, however, are based on a very limited selection and do not consider, for instance, whether a cross-border commuter from one country will be taking the job from a citizen of the country he or she commutes to.

Already well integrated

Copenhagen Economics quickly establishes that the Nordic region already is one of the best integrated regions in Europe. The cross-border proportion is greater in the Nordic region than in other European regions both when it comes to convenience retail and investment. 

Comparisons are made with Great Britain/Ireland, the so-called SaarLorLux Rheinland/Pfalz region and the Alps region which comprises parts of Austria, Germany, Switzerland and Italy.

The proportion of foreign direct investments from other Nordic countries is 17.5 percent in the Nordic region, while it is below 7.5 percent in the other regions. For the convenience retail sector the Nordic proportion is just over 20 percent of the total convenience retail, compared to less than 15 percent in the other regions. Only when it comes to the trading of goods is the regional proportion slightly larger in the SaarLorLux Rheinland/Pfalz- and Alps region compared to the Nordic region, where it is just over 13 percent.

To see what fewer border obstacles would mean, Copenhagen Economics has looked at Strömstad in Sweden and those commuting to Gothenburg in Sweden and Oslo in Norway. Strömstad’s 11,690 citizens earn on average 238,000 Swedish kronor (€26,400) a year. Those who want to earn more have two choices: they can commute to Gothenburg, where the average annual wage is 304,000 Swedish kronor (€33,700), or they can commute to Oslo where the average income is 312,000 kronor (€34,600) a year.

Out of 5,281 workers in the municipality, 129 commute to Gothenburg while 142 commute to Oslo.

Commuting down to three factors

According to European research three factors explain 95 percent of cross-border commuting:

• If wages are one percent higher on the other side of the border, you get three percent more cross-border commuting.
• If the distance commuters must travel increases by one percent, cross-border commuting falls by 0.5 percent.
• Languages are an obstacle, but less so in the Nordic region.

The average Strömstad worker would earn 32 percent more by commuting to Oslo and 27 percent more by commuting to Gothenburg, rather than working in Strömstad. Oslo is also 30 kilometres closer than Gothenburg.

“So there should be more than 30 percent more commuters to Oslo than to Gothenburg, yet there are only 10 percent more,” said Martin H Thelle from Copenhagen Economics as he presented the report.

Because 142 people commute from Strömstad to Oslo while the distance and differences in pay should result in 163 commuters, the untapped potential stands at 15 percent.

By looking at all cross-border commuters in the Nordic region, Copenhagen Economics concludes there should be 3,000 to 6,000 more of them if all border obstacles were removed.