The Finnish eastern and southeastern border regions are strategically important for the country but face steeper demographic decline and economic challenges than the national average. Home to over a quarter of Finland’s population and output, they are marked by ageing populations, shrinking workforces, and declining relative economic dynamism. At the same time, their location at the EU’s external border makes them central to Finland’s security, resilience, and regional development policy. This chapter describes and analyses the demographic, economic, labour market, and business dynamics of these regions, highlighting key trends and their policy implications.
Transition Strategies for Finland’s Eastern and South‑Eastern Border Regions
Adapting to Geopolitical Change
Abstract
Regional demographic development
Demographic change is the fundamental driver shaping these regions' economies, most notably in Eastern Finland Programme area1 where population has declined by 2.6% between 2019-24 (Alasalmi, Toikka and Ritala, 2024[1]). This demographic development reflects several interrelated trends.
While the eastern regions as a whole have experienced significant domestic outmigration, particularly among working-age people, this outward migration has been substantially offset by international immigration. For the period 2007-23, the report shows that while the eastern region had a cumulative domestic net migration of -5.5% relative to its 2007 population, it also had a cumulative net international immigration of +5.0%, nearly cancelling out the domestic migration loss.
Despite this near-neutral total migration balance, eastern Finland has experienced a severe decline in working-age population (-6% between 2019-24), influenced by both migration patterns and demographic aging. As the large baby boomer generations age out of the working-age category and younger cohorts are smaller due to lower birth rates in recent decades, this creates a significant demographic shift in the age structure. This effect is compounded by the fact that domestic outward migration tends to be concentrated among working-age people, even though the total net migration (domestic plus international) remains close to neutral.
The Figure 2.1 illustrates the proportions of three age groups <15 years, 15–65 years, and >65 years across the eight border regions and whole Finland for the years 1995, 2010, and 2023. The following trends are evident:
Decline in working-age population (15–65 years): Across all regions, the share of the working-age population has declined steadily over the years, indicating an ageing demographic structure. This decline is particularly noticeable in South Savo and Kainuu.
Increase in elderly population (>65 years): The proportion of elderly individuals has increased significantly in all regions. Lapland and Kainuu show the highest increases in this age group from 1995 to 2023.
Reduction in young population (<15 years): The share of children and adolescents has consistently decreased in all regions, with regions such as South Savo and Kainuu experiencing sharpest reductions.
There is a clear and ongoing demographic shift towards an ageing population, with significant implications for labour force availability, local tax revenue, regional service demands, and policy planning. While this trend affects all eight border regions to varying degrees, South Savo and Kainuu are particularly impacted, experiencing sharp declines in young and working-age populations coupled with a rapidly growing elderly demographic. In comparison to the national average, ageing trends are more pronounced across the border regions, with Northern Ostrobothnia standing out as an exception, maintaining a relatively higher proportion of residents under 15 years old.
Proportions of age groups (<15, 15–65, >65 years) by region and year (1995, 2010, 2023)
Source: Based on Statistics Finland’s data (https://pxdata.stat.fi/PxWeb/pxweb/en/StatFin/)
The economic significance of the border regions: a declining long-term trend
The Figure 2.2 illustrates trends in four key metrics of the whole border region consisting of the eight regions as shares of Finland's total from 1995 to 2022: population (top left panel), GDP (top right panel), workplaces (bottom left panel), and businesses (bottom right panel). The population share of the border region declined from 31% in 1995 to 27% in 2022. The GDP share shows a slight decline from 25% in 2000 to around 24% in 2022, with fluctuations in the 2000s. The workplace share decreases more consistently, dropping from about 38% in 1995 to 32% in 2022. Similarly, the border region’s share of Finland´s businesses declined steadily from 23% in 2013 to approximately 22% in 2022.
This data highlights structural shifts where the relative demographic, economic and business importance of the region has declined compared to the rest of Finland. The trends could reflect demographic changes, industrial shifts, or reduced regional economic competitiveness.
Trends in population, GDP, workplaces, and business shares of Finland's total in the eight border regions, 1995‑2022.
Source: Based on Statistics Finland’s data (https://pxdata.stat.fi/PxWeb/pxweb/en/StatFin/)
Viewed as a group, Northern Ostrobothnia contributes the largest share of border region’s GDP, at just over a quarter of the total (Figure 2.3). North Savo follows at 17%, while Lapland provides 13% and Kymenlaakso 11%. North Karelia accounts for 10%, closely followed by South Karelia at 9%, and South Savo at 8%. Kainuu occupies the smallest share at 5%, indicating a more modest economic weight compared with the other border regions.
Source: Based on Statistics Finland’s data (https://pxdata.stat.fi/PxWeb/pxweb/en/StatFin/)
Looking at the twelve-year period from 2000 to 2022, Northern Ostrobothnia consistently stands out as the largest contributor of Finland’s GDP among these border regions, with its share varying between six and seven percent (Figure 2.4). North Savo follows as the second highest, maintaining a share close to four percent. Lapland, Kymenlaakso and North Karelia occupy a middle group, generally varying between two and three percent, while South Karelia and South Savo remain lower, fluctuating around two percent and one-and-a-half percent respectively. Kainuu is positioned at the bottom throughout, reaching only about one percent of national GDP. The overall ranking remains relatively stable, despite moderate shifts in percentages across the observed period. Kymenlaakso’s share of national GDP fell from 3.6% in 2000 to 2.7% in 2009, and the region has not returned to its earlier level by end of 2022.
Trends in regional GDP shares as a percentage of Finland's total (2000–2022)
Source: Based on Statistics Finland’s data (https://pxdata.stat.fi/PxWeb/pxweb/en/StatFin/)
Employment and labour market trends from 2019
While employment data is available through 2024, providing recent insights into labour market developments, interpreting these trends requires careful consideration. Employment figures tend to be less responsive to economic changes than other metrics like business turnover or value added, which are unfortunately only available through 2022 (Alasalmi, Toikka and Ritala, 2024[1]). This data limitation makes it particularly challenging to assess the full impact of Russia's invasion of Ukraine and subsequent economic sanctions.
From an employment perspective, prior to the COVID-19 crisis and Russia’s war of aggression against Ukraine, the industrial composition of these regions in 2019 differed markedly from that of southern Finland, especially in the balance between manufacturing and knowledge-intensive services (Figure 2.5). However, analysing recent business performance is constrained by data availability, with key metrics like revenue and value added only available through 2022. This data limitation significantly impacts our ability to assess the effects of changed Finnish-Russian economic relations at this point.
In 2019, the public sector emerged as the primary source of employment in the northern and eastern border regions, as well as across the whole Finland, except in the Uusimaa region. The public sector was particularly important in Eastern Lapland and Kainuu. Manufacturing was the second most important sector in six of the eight border regions, especially in South Karelia, North Karelia, and Kymenlaakso, although regions in the “Rest of Finland” had higher average employment shares in this industry.
While Professional & Support Services employment in the eight border regions was below the national level and the average for the Rest of Finland, the sector still played an important role in North Ostrobothnia, Koillismaa, and Kainuu. Trade employment was relatively balanced across the border regions but remained slightly below the national average in all eight. In Eastern Lapland, trade was the third most important source of employment.
Construction was significant in every region except Kymenlaakso and Eastern Lapland. Education and healthcare were especially important in Eastern Lapland and South Savo. Although Hospitality and Recreation represented a smaller share of overall employment, these sectors thrived in Eastern Lapland and Koillismaa, reflecting a comparatively higher dependence on tourism than in other regions.
On average, the public sector accounted for significantly higher employment shares in both the Northern and Eastern Program Areas compared to the Rest of Finland and Whole Finland, underscoring its critical role in these regions. In contrast, sectors such as “professional & support services” and “trade” were notably less significant in the Eastern and Northern Program Areas compared to the Rest of Finland and Whole Finland. Manufacturing was a more important employer in Rest of Finland compared with the two programme areas. Meanwhile, sectors like “construction” and “transport & storage” exhibited smaller regional variations, suggesting more uniform levels of employment across the country.
Industry distribution of regional employment (%), 2019
Note: The eight eastern and southeastern border regions are marked with *. "Hospitality & Recreation" includes accommodation, food services, and leisure/personal services, "Professional & Support Services" includes expert and support services, "Education & Healthcare" refers to private sector education and social/health services, "Other" includes agriculture, forestry, organizations, and unclassified employers. The Northern and Eastern Program Areas form the main groups of analysis. The category "Rest of Finland" refers to regions outside the Eastern and Northern Program Areas, excluding Uusimaa and Åland. It represents the parts of Finland that are not included in the two program areas, with Uusimaa separately due to its distinct demographic and economic characteristics. "Whole Finland" includes all regions of the country, incorporating both the Eastern and Northern Program Areas, Uusimaa, and Åland. It represents the national averages and totals for all regions combined.
Source: Based on data presented in (Alasalmi, Toikka and Ritala, 2024[1]).
Between 2019 and 2024, manufacturing employment declined significantly in Eastern Lapland (-13.5%) and Kymenlaakso (-6.0%), while Kainuu (+2.1%) and North Savo (+1.1%) performed better than the rest of Finland (-0.1%) and the national average (+0.7%) (Figure 2.6). Notably, also North Ostrobothnia was growing (+0.5%), and South Karelia (-0.9%) and North Karelia (-1.3%) had smaller decreases compared to other regions.
Construction saw broad declines in employment, especially in South Karelia (-14.2%) and South Savo (‑13.4%), while Lapland (+1.9%) showed some resilience compared to the other border regions and Rest of Finland (-4.6%) and the national average (-5.1%).
These trends are also linked to ongoing decarbonisation efforts, which have significant implications for both manufacturing and construction. While manufacturing is undergoing structural adaptation to meet climate targets, construction plays a dual role as a supporting sector for green technologies and a sector that must transition toward low-emission materials and energy efficiency standards (Confederation of Finnish Industries, 2025[2]). This shift is likely to further influence employment patterns in the coming years.
Transport and storage employment saw notable declines in many regions, with the sharpest drops in Eastern Lapland (-11.6%) and South Karelia (-13.6%). South Savo (-10.4%) and Kymenlaakso (-5.1%) also experienced significant reductions. Conversely, Koillismaa (+3.1%) and Northern Ostrobothnia (+2.4%) showed slight growth, outperforming the Rest of Finland (-1.2%) and the national average (-5.3%).
Trade employment remained relatively balanced across regions, with positive trends in North Ostrobothnia (7.6%), North Karelia (+5.2%) and North Savo (+4.7%), aligning with the Rest of Finland (+5.2%) and the national average (+3.9%). However, declines were observed in regions such as South Karelia (-8.8%) and Eastern Lapland (-4.3%).
The hospitality and recreation sector experienced strong growth in employment in tourism-driven regions like Eastern Lapland (+27.1%), Koillismaa (+19.6%), and Lapland (+17.7%), significantly outperforming the national average (+9%) and the Rest of Finland (+9.8%). Conversely, South Karelia (-2.2%) and Kymenlaakso (-5.6%) were the only regions that saw a decline.
In professional and support services, every region saw positive change, with Eastern Lapland (+30.1%), Lapland (+19.1%) and North Ostrobothnia (12.1%) exhibited fastest growth, exceeding the Rest of Finland (+9.2%) and the national average (+9.3%).
Education and healthcare showed substantial growth in several regions: North Ostrobothnia (+25.8%), Eastern Lapland (+24.7%), and North Savo (24.3%), outperforming the Rest of Finland (+22.9%) and the national average (+21.8%). Other regions, such as North Karelia (+14%), also saw gains.
The public sector remained the most important employer, with biggest further increases in North Ostrobothnia (+5.1%), North Savo (5.6%), Lapland (+4%), and North Karelia (+5.1) but with changes below the national trends (+6.7%) and the growth in Rest of Finland (+7.5%). Eastern Lapland (-7.5%) and Kainuu (-3.7%) deviated from the national trend by experiencing declines in public sector employment, with Kymenlaakso and Koillismaa also showing small decreases.
Percentage change in employment across economic sectors by region, 2019–2024
Source: Based on data presented in (Alasalmi, Toikka and Ritala, 2024[1]).
In 2023, employment rates (share of employed persons aged 15-64) varied across Finnish regions, with Lapland achieving the highest rate at 75.7%, while South Savo recorded the lowest at 67.4% (Figure 2.7). The overall range of employment rates was 8.3 percentage points, highlighting moderate regional disparities. Regions such as South Savo and Kymenlaakso remained at the lower end of the border regions. These differences emphasise the need for tailored regional policies to address disparities and strengthen local labour markets.
The employment rates increased across the Finnish border regions between 2009 and 2023. Lapland showed the highest growth (+16.6 percentage points), followed by Kainuu (+12.9) and North Savo (+11.3). North Karelia (+10.5) and South Karelia (+9.8) also experienced notable improvements. Northern Ostrobothnia (+7.5) and Kymenlaakso (+4.4) showed moderate growth. South Savo, despite being on the lower end, still increased by 5.1 percentage points. The national average (Finland total) rose by 6.1 points. These changes indicate strong regional variation, reflecting shifts in regional employment dynamics.
After 2020, according to the VATT report, available data shows that eastern and northern regions have demonstrated improving employment rates relative to national averages, though absolute employment numbers have declined in eastern Finland (Alasalmi, Toikka and Ritala, 2024[1]). This apparent contradiction highlights the importance of considering both relative and absolute measures when assessing regional economic health.
Employment rates (% of persons aged 15–64) by region, 2009–2023
Source: Based on Statistics Finland’s data (https://pxdata.stat.fi/PxWeb/pxweb/en/StatFin/)
The Figure 2.8 illustrates the unemployment rates (% of persons aged 15–64) in Finland's eastern and southeastern border regions, as well as nationally, from 2009 to 2023. The data reveals significant variation in unemployment across regions and over time, reflecting both economic and regional disparities.
High regional disparities: At the beginning of the period, North Karelia, Kainuu, and Lapland exhibited higher unemployment rates compared to the national average and most other regions, indicating economic challenges. In contrast, regions like Northern Ostrobothnia showed lower unemployment rates, reflecting better labour market conditions. Lapland's recovery by the end of the period has been remarkable.
National trends: Unemployment peaked in 2015 and gradually declined until 2019. However, rates rose again during the COVID-19 pandemic (2020–2021), followed by some recovery in 2022 before increasing again in 2023.
Development in recent years: Most regions saw a reduction in unemployment rates from 2021 to 2023, reflecting gradual economic recovery, although regional disparities persist.
Unemployment rates (% of persons aged 15–64) by region, 2009–2023.
Source: Based on Statistics Finland’s data (https://pxdata.stat.fi/PxWeb/pxweb/en/StatFin/)
Business activity
From 2013 to 2023, the number of businesses per 1 000 inhabitants grew in all analysed regions. In 2023, the highest density of businesses was observed in Lapland, with 83.0 businesses per 1 000 inhabitants, while the lowest was in Kainuu, with 63.1 businesses per 1 000 inhabitants (Figure 2.9). The largest absolute growth occurred in Lapland, which saw an increase of 19.5 businesses per 1 000 inhabitants, while the smallest absolute growth occurred in South Karelia, with an increase of 9.8 businesses per 1 000 inhabitants.
Businesses per 1000 inhabitants across eastern and southeastern border regions vs. Finland, 2013–2023
Source: Based on Statistics Finland’s data (https://pxdata.stat.fi/PxWeb/pxweb/en/StatFin/)
Recently, business closures have increased in the eight eastern and southeastern border regions, suggesting a challenging business environment, particularly since 2022. Figure 2.10 illustrates the net dynamics of business start-ups and closures across multiple regions and time periods from Q3/2019–Q2/2024. Overall, start-ups generally outpaced closures in most regions early in the time period, indicating positive business activity. However, closures increased significantly in recent periods, leading to more balanced or negative net outcomes in some regions (North Savo in period Q3/2023-Q2/2024).
Lapland and North Ostrobothnia have consistently demonstrated strong start-up activity throughout the period, with closures relatively lower, highlighting resilience in these regions. Conversely, regions like South Karelia and Kymenlaakso experienced higher closures, particularly in later periods, suggesting economic challenges. The increase in closures over time reflects possible economic headwinds, while variations between regions highlight localised differences in business dynamics.
Business start-ups and closures by region: Q3/2019–Q2/2024
Source: Based on Statistics Finland’s data (https://statfin.stat.fi/PxWeb/pxweb/fi/StatFin/StatFin__aly/statfin_aly_pxt_11yq.px/)
The VATT report also analysed business start-ups, closures, and bankruptcies, showing that between 2019 and 2024, business start-ups increased most in Koillismaa, Lapland, and North Ostrobothnia, with declines observed in only a few regions (Alasalmi, Toikka and Ritala, 2024[1]). The report notes that business closures increased most significantly in Lapland, by nearly 90% since 2019, and least in Kymenlaakso (36%). In all regions except Koillismaa, closures outpaced start-ups relative to 2019. Eastern Finland showed lower-than-average increases in closures.
The VATT report also notes that few business closures involve bankruptcies, and many result from controlled exits, such as retirements of the entrepreneurs. Some closures affect minor businesses, often considered inactive or "shell companies", and changes in start-ups can influence closure trends. However, the recent acceleration of closures over start-ups suggests a worsening economic climate in the eastern and southeastern border regions. It should also be noted that large businesses rarely close outright, with financial struggles better reflected by layoffs than closures. According to VATT, Kymenlaakso led bankruptcy growth, but regional variation remained inconsistent. Bankruptcies remain rare and fluctuate significantly across small areas, making broader regional trends more meaningful for analysis.
Overall, it should be noted that these metrics cannot capture how existing businesses may have adapted their operations or sought new markets in response to changed circumstances. Additionally, broad regional analysis may miss localised effects, particularly in border communities where impacts might be more pronounced.
Regional attractiveness
Regional attractiveness serves as a cornerstone for fostering economic growth, social development, and sustainable livelihoods. In the context of Eastern and Southeast Finland, enhancing attractiveness is fundamental to addressing economic disparities, demographic challenges, and to maintain and bolster competitiveness. At the core of the proposed national strategy ‘Eastern Finland – a New Direction’ is an acute focus on improving the region’s attractiveness:
“Firstly, the vision and action are structured around the development of business and skills. Eastern Finland must be attractive for investment. Secondly, the educational infrastructure and knowledge environment, combined with a quality living environment, create attractiveness for talents and students, and on this basis the second theme is investment in education and RDI activities.” (Ministry of Economic Affairs and Employment, 2023[3])
Achieving this requires a joined-up approach tailored to each region, accounting for the multifaceted nature of regional attractiveness, which varies significantly within the geographically and socio-economically diverse regions of Eastern and Southeast Finland. Moreover, while there is some convergence, regional authorities express different views about which attractiveness targets and which attractiveness policies matter most under current conditions. To better understand perspectives on regional attractiveness, the questionnaire sent to all eight regions prior to the first fact-finding mission gathered insights on regional priorities, target groups to attract, and key policy focus areas. Among the ranked priorities, regional readiness and resilience to adapt to megatrends - including the green transition, digitalization, and demographic change - emerged as the top priority for half of the regions (Figure 2.11). This was followed by the importance of improving positions in value chains and fostering economic diversification. Other priorities, such as addressing the impact of recent crises and the development of policy tools to enhance regional attractiveness and resolve trade-offs among competing objectives, were deemed less relevant. Regarding target groups, talent was identified as the most critical focus for the majority of regions, with investors ranked second overall. Notably, no region prioritized exporters or visitors as their top target group. Among policy focus areas, economic attraction and connectedness were consistently highlighted as the most significant levers for enhancing regional attractiveness, while citizens’ well-being and sustainable development ranked mid-range. Finally, land use and housing, and visitor appeal, were considered the least significant priorities.
Demographic decline is reshaping the economic and social structure of the eastern border regions. Between 2019 and 2024, the population of these regions declined by 2.6%, with significant reductions in the working-age population. Domestic outmigration, particularly among younger people, has been a major driver of this trend, while international immigration has partially offset these losses. However, the ageing population continues to place pressure on public services, regional tax revenues, and labour markets, with South Savo and Kainuu among the most affected regions. The growing proportion of elderly residents, combined with a shrinking youth population, raises concerns about the long-term sustainability of these areas.
The economic significance of the border regions has been declining relative to the rest of Finland. Key economic indicators, including GDP share, business activity, and employment levels, have shown a long-term downward trend. The border regions accounted for 31% of Finland’s population in 1995 but only 27% in 2022. Similarly, the share of businesses in these regions has steadily decreased. Northern Ostrobothnia remains the most economically significant region, contributing the largest share of GDP, followed by North Savo, Lapland, and Kymenlaakso.
Employment trends highlight structural shifts in the regional labour market. While public sector employment remains a cornerstone of the labour market, manufacturing jobs have seen significant declines in several regions, particularly in Eastern Lapland (-13.5%) and Kymenlaakso (-6.0%) between 2019 and 2024. In contrast, employment in tourism-related sectors, professional services, and healthcare has grown in areas such as Lapland and North Ostrobothnia. Regional employment rates vary, with Lapland recording the highest rate at 75.7% and South Savo the lowest at 67.4%. These differences highlight the need for regionally tailored labour policies to address disparities and support workforce transitions.
Business activity in the eastern and southeastern border regions has experienced mixed trends, with increasing closures posing challenges. The number of businesses per 1 000 inhabitants has increased in all border regions since 2013, with Lapland showing the strongest growth. However, since 2022, business closures have risen significantly in response to economic uncertainty, particularly in South Karelia and Kymenlaakso. While Lapland and North Ostrobothnia have demonstrated resilience, other regions face challenges in maintaining a dynamic business environment.
Economic shocks, including the COVID-19 pandemic and Russia’s war in Ukraine, have had complex and uneven impacts in the border regions. While employment figures suggest relative stability, they may not fully capture underlying changes in business operations and economic structures. The overlapping effects of external shocks make it difficult to isolate specific causes of economic trends. Certain industries, such as tourism and retail, have faced acute challenges, and data limitations make it difficult to assess the full scope of recent economic transformations. Future analysis will require more granular, sector-specific data to fully understand the evolving economic landscape of Finland’s eastern and southeastern border regions.
External shock impacts
While these regions appear to have maintained relative stability through recent external shocks including COVID-19 and Russia's invasion of Ukraine, this assessment must be qualified by data limitations. For instance, the apparent resilience shown in employment figures may mask underlying changes in business operations that current data cannot capture. Furthermore, the overlapping nature of these events makes it difficult to isolate specific causes of economic changes.
Sector-specific impacts, such as those in tourism and retail in border regions, are visible in available data. However, the full extent of these impacts may not yet be apparent given data lags and the possibility of delayed effects working through the economy.
Limitations in the assessment
These regions face continuing demographic challenges, though their demonstrated adaptability suggests capacity for resilience. However, any impact assessment must acknowledge significant uncertainties, particularly given:
The lag in comprehensive business performance data.
The difficulty of separating various economic influence factors.
The potential for longer-term structural changes that may not yet be visible in available data.
The challenge of capturing local variations within broader regional trends.
In conclusion, while available data provides valuable insights into the economic development of eastern and northern Finland’s border regions, significant limitations in data availability and measurement tools require careful interpretation of these findings. The apparent stability in some metrics may mask underlying changes that current data cannot fully capture. A more complete understanding of recent economic developments, particularly regarding the impact of changed Finnish-Russian relations, may only be possible with additional years of data and more detailed analysis of specific sectors and localities.
References
[1] Alasalmi, J., M. Toikka and A. Ritala (2024), Regional economic development in Eastern and Northern Finland, VATT, https://www.doria.fi/bitstream/handle/10024/190601/datahuone-raportti-4-2024-itaisen-ja-pohjoisen-suomen-aluetaloudellinen-kehitys.pdf?sequence=1&isAllowed=y (accessed on 7 January 2025).
[2] Confederation of Finnish Industries (2025), Construction industry - Climate 2035, https://www.climate2035.fi/roadmaps/construction-industry/ (accessed on 17 February 2025).
[3] Ministry of Economic Affairs and Employment (2023), Eastern Finland - A New Direction.
← 1. Kainuu, North Savo, North Karelia, South Karelia, South Savo, and Kymenlaakso form the Finnish government's Eastern Finland Programme area. The report by VATT uses both the Northern and Eastern Finland Programme areas in its analysis.