Vol. 2 No. 1

Front cover and whole issue 1/2021

Dominik Hangartner, Matti Sarvimäki and Judith Spirig: Managing Refugee Protection Crises: Policy Lessons from Economics and Political Science


We review and interpret research on the economic and political effects of receiving asylum seekers and refugees in developed countries, with a particular focus on the 2015 European refugee protection crisis and its aftermath. In the first part of the paper, we examine the consequences of receiving asylum seekers and refugees and identify two main findings. First, the reception of refugees is unlikely to generate large direct economic effects. Both labor market and fiscal consequences for host countries are likely to be relatively modest. Second, however, the broader political processes accompanying the reception and integration of refugees may give rise to indirect yet larger economic effects. Specifically, a growing body of work suggests that the arrival of asylum seekers and refugees can fuel the rise of anti-immigrant populist parties, which may lead to the adoption of economically and politically isolationist policies. Yet, these political effects are not inevitable and occur only under certain conditions. In the second part of the paper, we discuss the conditions under which these effects are less likely to occur. We argue that refugees’ effective integration along relevant linguistic, economic, and legal dimensions, an allocation of asylum seekers that is perceived as ‘fair’ by the host society, and meaningful contact between locals and newly arrived refugees have the potential to mitigate the political and indirect economic risks.

Vesa Kanniainen, Juha Laine and Ismo Linnosmaa: Pricing the Pharmaceuticals when the Ability to Pay Differs*


A non-trivial fraction of people cannot afford to buy pharmaceutical products at unregulated market prices. This paper analyses the public insurance of a patent-protected pharmaceutical product in terms of price controls and socially optima third-degree price discrimination. First, the paper characterizes the Ramsey pricing rule in the case where the producer price has to cover the R&D costs of the firm and patients’ pharmaceutical expenditures are not covered by health insurance. Subsequently, conditions for a welfare increasing departure from the Ramsey pricing rule are stated in terms of price regulation and health insurance coverage. Unlike the earlier views expressed, the increased consumption of the pharmaceutical is shown to be welfare increasing. In the spirit of the Rawlsian view, a criterion for vertical equity is examined as an optimal means-tested health insurance. In this scheme, the regulator chooses a higher insurance coverage for individuals whose income is below an endogenously determined income threshold. The means-tested insurance scheme improves social welfare but also yields very equal market outcomes.

JEL codes: L1, L5, I18

Eetu Kauria: The anticipation effect of a light rail transit line on housing prices in the Helsinki region*


I analyze how housing markets in Espoo and Helsinki anticipate the construction of a new light rail transit connection called Jokeri Light Rail. I use geocoded micro-level housing transaction data from 2003–2019. As an econometric identification strategy, I utilize difference-in-differences estimation with a hedonic price model. My main result is that, on average, apartment prices increase by 5 percent more within 800 meters of the Jokeri Light Rail stops than apartments farther away. A rough estimate of the total windfall for homeowners indicates that the anticipated benefits exceed the cost estimate for the investment five to eight years before the Jokeri Light Rail becomes operational.

JEL codes: D61, R41

Olli-Matti Laine and Annika Lindblad: Nowcasting Finnish GDP growth using financial variables: a MIDAS approach*


We analyse the performance of financial market variables in nowcasting Finnish quarterly GDP growth. In particular, we assess if prediction accuracy is affected by the sampling frequency of the financial variables. Therefore, we apply MIDAS models that allow us to nowcast quarterly GDP growth using monthly or daily data without temporal aggregation in a parsimonious way. We find that financial market data nowcasts Finnish GDP growth relatively well: nowcasting performance is similar to industrial production, but financial market data is available much earlier. Our results suggest that the sampling frequency of financial market variables is not crucial: nowcasting accuracy of daily, monthly and quarterly data is similar.

JEL codes: E44, G00, E37

Journal of Finnish Economic Association 1/2021