Effects of trade creation and trade diversion in the Finland's import

According to the economic theory of customs unions, trade flows usually are redirected due to the formation of a free trade area or a customs union. Effects of trade creation and trade deviation emerge. The author investigates whether these effects have taken place in Finland's imports after it became a member of the European Union in 1995 with regard to partners in the EU and third countries, primarily Russia. The analysis is carried out on the basis of statistical data of the Finland's customs (Tulli) and the European Union (Eurostat). The dynamics of imports is measured in volume and in value; imports of petroleum are separately considered; hypothesis of replacing the goods of certain trading partners with similar goods of others is tested. The analysis gives evidence that after Finland's accession to the EU the effects of trade creation and trade diversion have not occured. On the contrary, the share of non-EU countries (including Russia and China) in Finland's imports has increased. Although Finland's imports from Russia grew largely due to oil and petroleum products, even without this group of goods, there was an increase in import from this country, albeit at a slower pace. The share of EU-15 in Finland's imports has declined because these imports grew at a slower pace than imports from third countries, rather than because of substitution of European products by products from other regions.