gE Blog Series: The Nordic Nations Part 4 - Economic Implications of NATO Membership

As a direct result of Russia's increasing influence and perceived expansionism into Eastern Europe, Sweden and Finland have recently agreed to tighten their relations with NATO. The two Nordic countries have long held interest in joining NATO, especially since Sweden abolished compulsory military service in 2010, but the recent push towards membership has been fueled by growing tensions with Moscow, especially by the unauthorized entry of Russian planes into their airspace. Although it is clear that both countries are joining primarily for security purposes, joining a security alliance such as NATO also holds important economic implications for the newly admitted countries and the international system.

As seen through the experiences of member countries, joining the alliance has confirmed the beliefs of economists and international relations scholars that joining NATO for security purposes also entails economic benefits. Foreign NATO representatives trying to rally interest for membership typically note that membership not only reduces the chances of conflict but also reduces risk factors like nationalization and expropriation, seeing as NATO commits its members to a free-market economy. Therefore, risk-averse investors positively respond to membership through increased investments into safer markets. This has been commonly noted as the "NATO Effect," and has been clearly observed by the immense increase of foreign direct investment that has poured into Eastern European NATO countries following the end of the Cold War, such as in Poland, Hungary, and the Czech Republic. 

In summary, while Finland and Sweden are clearly joining NATO due to the heightened security risk posed by Russia, it is also evident that their membership will also boost their standing as safer markets for FDI and other foreign business interests. Although entering security alliances can greatly increase diplomatic and economic ties with other member states, especially when such an alliance like NATO supports democratic and free-market ideals as a part of its core identity, it should also be noted that joining such an alliance causes notable tension with other economic and military powers in the region, such as Russia. Therefore, while Sweden and Finland are predicted to see an increase in diplomatic and economic relations with other NATO states, global enterprises with diverse regional interests, especially in these countries and Russian-influenced Eastern European markets, should be aware that the ascension of these Nordic countries into the alliance could cause serious rifts throughout Northern and Eastern Europe trade relations.