Research
Working papers
Markkanen, Jaakko, Markku Siikanen, and Nelli Valmari (2026). Beggar-Thy-Neighbor by Other Means. ETLA Working Papers 141.
A country that cannot devalue its currency can still cut its exporters’ costs through industrial policy and steal business from foreign rivals. We call this beggar-thy-neighbor by other means and measure it for Finland’s 2017–2019 internal devaluation policy. We estimate the export demand for nine large manufacturing industries, together accounting for roughly 4 percent of Finnish GDP, using a BLP-style demand model and a sufficient-statistic identity for cost incidence. We document super-pass-through to export prices, averaging about 1.18, above the CES gravity ceiling. The realized policy cut labor costs by 3.6 percent and raised Finnish export revenue by €239.0 million over 2017–2020, 0.6 percent of baseline. A more ambitious original government proposal with 5 percent cost decrease would have shifted €567.8 million in revenue away from rival exporters in the same destinations. A hypothetical four-day work week would have cost €2.4 billion with wage costs rising 28 percent. Internal devaluation captures export-market share from foreign rivals. The cross-border revenue transfer is comparable in magnitude to the domestic gains.
Keywords: International trade, Markups, Pass-through, Industrial policy, Internal devaluation
@techreport{markkanen2026beggar,
author = {Markkanen, Jaakko and Siikanen, Markku and Valmari, Nelli},
title = {Beggar-Thy-Neighbor by Other Means},
year = {2026},
institution = {ETLA Economic Research},
type = {ETLA Working Papers},
number = {141}
}Jokelainen, Antto, Jaakko Markkanen, Samuli Leppälä, Markku Siikanen, Matti Sipiläinen, and Otto Toivanen (2025). Free Entry and Social Inefficiency in Regulated Pharmacy Markets. VATT Working Papers 172. Also available as CEPR Discussion Paper 20095. Revise & Resubmit, American Economic Journal: Microeconomics.
We study entry deregulation in the Finnish pharmacy market where prices, markups, and the number and location of pharmacies are regulated. Our counterfactual simulations show that the number of pharmacies increases substantially, particularly in urban areas. Although almost all consumers benefit, rural areas and areas with older populations benefit less. The increase in aggregate consumer surplus is dominated by significant decreases in pharmacy profits and government tax revenue. As a result, free entry turns out to be socially excessive. The prevailing entry restrictions may thus work reasonably well from a total welfare perspective, but with distributional consequences: They benefit incumbent pharmacists at the expense of customers.
Keywords: entry regulation, deregulation, pharmacies, pharmaceuticals, welfare
@techreport{jokelainen2025free,
author = {Jokelainen, Antto and Markkanen, Jaakko and Leppälä, Samuli and Siikanen, Markku and Sipiläinen, Matti and Toivanen, Otto},
title = {Free Entry and Social Inefficiency in Regulated Pharmacy Markets},
year = {2025},
institution = {VATT Institute for Economic Research},
type = {VATT Working Papers},
number = {172},
note = {Also available as CEPR Discussion Paper 20095}
}Markkanen, Jaakko (2024). Passthrough of Retail Price Regulation in the Market for Pharmaceuticals. ETLA Working Papers 123.
I study the transmission of pharmacy mark-ups to retail prices and the policy between retail markups and Value Added Tax (VAT) rates in Finland. My reduced form evidence demonstrates that pharmaceutical manufacturers respond to a decrease in the regulated pharmacy mark-ups by increasing their wholesale prices. I estimate a structural model of pharmaceutical supply and demand using data from the Finnish statin market. I show that only half of the decrease in the pharmacy-markup was transferred to retail prices. I also demonstrate that the government can address the increase in manufacturer revenues by increasing the VAT rate for pharmaceuticals.
Keywords: Pharmaceuticals, Passthrough, Price regulation
@techreport{markkanen2024passthrough,
author = {Markkanen, Jaakko},
title = {Passthrough of Retail Price Regulation in the Market for Pharmaceuticals},
year = {2024},
institution = {ETLA Economic Research},
type = {ETLA Working Papers},
number = {123}
}Kortelainen, Mika, Jaakko Markkanen, Markku Siikanen, and Otto Toivanen (2023). The Effects of Price Regulation on Pharmaceutical Expenditure and Availability. Helsinki GSE Discussion Papers 16. Also available as CEPR Discussion Paper 18497. Revise & Resubmit (2nd round), Journal of the European Economic Association.
Quasi-experimental evidence on the effectiveness of price regulation policies in curbing pharmaceutical expenditure is scarce. We analyze widely utilized generic substitution and reference price policies using data from the Nordic countries. Constructing treatment and control groups by matching data across countries by active ingredients and employing difference-in-difference methods on market-level observations, we find that expenditure per dose decreases by 40% moving from the laxest to the strictest regime. Prices decrease less: Reallocation of demand to cheaper products likely explains the difference. We find no adverse effects on pharmaceutical availability and non-existent or positive quantity effects.
Keywords: pharmaceutical expenditure, pharmaceutical pricing, generic competition, reference pricing, regulation
@techreport{kortelainen2023effects,
author = {Kortelainen, Mika and Markkanen, Jaakko and Siikanen, Markku and Toivanen, Otto},
title = {The Effects of Price Regulation on Pharmaceutical Expenditure and Availability},
year = {2023},
institution = {Helsinki GSE},
type = {Helsinki GSE Discussion Papers},
number = {16},
note = {Also available as CEPR Discussion Paper 18497}
}Ongoing research
Kalin, Salla, Jaakko Markkanen, and Markku Siikanen. Demand for Unemployment Insurance and Union Membership. Work in progress.