Estonian economy: a brief description

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:54

The Estonian economy is one of the most successful examples of the development of small economies. During the crisis, the state experienced a moderate decline compared to other former Soviet republics, and then quickly recovered. Today, Estonia is considered one of the we althy, not developing countries.

A brief history of the Estonian economy until the 20th century

For a long time, the economy of the territories where modern Estonia is located was based on trade. Important trade routes connecting Russia and Western Europe passed through Tallinn (at that time the city was called Revel) and Narva. The Narva River provided communication with Novgorod, Moscow and Pskov. In addition, in the Middle Ages, Estonia was a major supplier of grain crops to the Nordic countries. The industrialization of some industries (especially woodworking and mining) began even before Estonia joined the Russian Empire.

Economics of Estonia and Russia have been developing together from the moment when the Russian Empire is interested in the B alticclashed with the interests of Sweden. The accession to the Russian Empire of the territories of modern Estonia, which formed the Revel and Livonian provinces, as well as the emergence of a new capital (St. Petersburg), reduced the commercial importance of Tallinn and Narva. The Agrarian Reform of 1849 had a positive impact on the country's economy, after which it was allowed to sell and lease land to peasants. By the end of the 19th century, about 50% of the peasants in the northern part of the country and 80% in the south and in the center of modern Estonia were owners or tenants of land.

In 1897, more than half of the population (65%) was employed in the agricultural sector, 14% worked in the industrial sector and the same number were engaged in trade or worked in the service sector. The B altic Germans and Russians remained the intellectual, economic and political elite of Estonian society, although the share of Estonians in the national composition reached 90%.

First independent steps in the economy

Estonian economy passed the first test of the possibility of regulation by internal state forces in the 1920s-1930s. The independence of the state caused the need to look for new markets, to carry out reforms (and there were enough problems in the economy at that time), to decide how natural resources would be used. The new economic policy, initiated by the then Estonian Minister of Economics Otto Strandman, was aimed at the development of industry focused on the domestic market and agriculture focused on export.

The following factors contributed to the independent development of the state economy:

• favorable territorial location;
• the structure of production established under the Russian Empire;
• developed network of railways connecting the domestic market;
• monetary assistance from Soviet Russia in the amount of 15 million rubles in gold equivalent.

However, there were many problems:

• virtually all equipment from plants and factories was removed during the First World War;
• violated the existing economic ties, the country lost the market in the east;
• US stopped supplying food to Estonia due to the signing of the Tartu Peace;
• More than 37,000 citizens returned to Estonia in need of housing and jobs.

Economy of the Estonian Soviet Socialist Republic

A brief description of the Estonian economy as part of the USSR begins with a calculation of the damage caused by military operations during the Second World War. During the German occupation in the republic, 50% of residential buildings and 45% of industrial enterprises were destroyed. The total damage is estimated at 16 billion rubles in pre-war prices.

After the end of the Second World War, Estonia was in first place in terms of investment per capita among all Soviet republics. The Estonian economy in those years was represented by:

1. Industrial complex. Developed as a mining industry (oil shale, phosphorites andpeat) and the manufacturing industry. The industries of the latter included mechanical engineering, metalworking, chemical, textile and food industries.
2. Energy. It was in Estonia that the first gas shale plant in the world was built, and later the world's largest hydroelectric power plants on shale. The energy complex fully met the needs of the republic and made it possible to transfer part of the energy to the north-west of the USSR.
3. Agricultural sector. During the years of the USSR, Estonian agriculture specialized in dairy and meat animal husbandry and pig breeding. Fur farming, beekeeping, poultry farming developed. Industrial, fodder and grain crops were grown.
4. Transportation system. Since the time of the Russian Empire, a developed railway network has remained in the republic. In addition, road and sea transport developed.

Restoration of independence and economic reforms

During the restoration of independence, the Estonian economy is briefly characterized by reforms. The latter can be divided into four groups: liberalization, structural and institutional reforms, the return of nationalized property to its rightful owners, and stabilization. The first stage of transformation was characterized by the transition to the regulation of pricing only for electricity, heating and public housing.

High inflation rates have become a serious problem. In 1991, the figure was 200%, and by 1992 it had risen to 1076%. The savings that were kept in rubles rapidlydepreciated. As part of the new economic policy, the return of once nationalized property to the owners was also carried out. By the mid-1990s, the privatization process was almost completely completed. At the same time, Estonia became one of the first countries in the world to adopt a flat income tax system.

Jobs and the loading of Estonian transport routes were provided by trade and transit of goods from the Russian Federation. Transit transport services accounted for 14% of the gross domestic product. Most of the Estonian state budget (about 60%) was formed by Russian transit.

Economic growth after Estonia's accession to the EU

Estonian economy after joining the EU has developed in a positive way. Significant volumes of foreign investments were attracted to the country. By 2007, Estonia ranked first among the former Soviet republics in terms of GDP per capita. At the same time, signs of "overheating" began to appear in the economy: stabilized inflation rates crept up again, the foreign trade deficit grew by 11%, and a so-called price bubble appeared in the housing market. As a result, economic growth began to slow down.

Economic decline amid the global financial crisis

Negative trends associated with the financial crisis have also manifested themselves in the Estonian economy. Industrial production fell in 2008, the budget was passed with a deficit for the first time, and GDP fell by 3.5 percent. At the same time, the volume of railway transportation decreased by 43%, to 8,Inflation increased by 3%, domestic demand decreased and imports decreased.

Research carried out by the working group of the University of Tartu showed that the Estonian economy is developing according to the Greek scenario. The country was dominated by hotel services and trade, as well as small-scale construction, rather than industry, financial intermediation, and high-performance commercial services. The crisis had a very strong impact on the Estonian economy, which made us talk about the collapse of the existing development model.

Today's structure of the Estonian economy

The Estonian economy is briefly represented by the following industries:

1. Industry (29%). The chemical, processing, pulp and paper, fuel industries, energy, and mechanical engineering are actively developing. A significant share of GDP is construction and real estate.
2. Agriculture (3%). Meat and dairy cattle breeding and pig breeding remain the main sectors of the agricultural sector. Agriculture is mainly engaged in the cultivation of fodder and industrial crops. Fisheries are also developing.
3. Service sector (69%). Tourism, especially medical tourism, is experiencing rapid growth in Estonia. Recently, the number of offshore IT companies has grown significantly. An important component of the economy is transit through the territory of the state - this determines the role of Estonia in the world economy. For example, transit accounts for 75% of rail traffic.

Regional features of the economy

The Estonian economy today is geographically dispersed. So, in the northeastparts of the state have a developed manufacturing sector, three-quarters of industrial goods are produced in this region. The main industrial centers of the country are Tallinn with its environs, Narva, Maardu, Kohtla-Jarve, Kunda. In southern Estonia, agriculture has become more developed, while the western part of the country is characterized by a developed fishing industry, livestock breeding and tourism are also developed.

Finance, banks and the external debt of the state

The official currency of Estonia is the euro, the transition to the European currency from the Estonian kroon was finally completed by the beginning of 2011. The functions of the central bank in the country are performed by the European Central Bank, and the national supervisory authority is the Bank of Estonia. The functions of the latter are to meet the needs of the population in cash, as well as to ensure the reliability and stability of the entire banking system.

There are about ten commercial banks in Estonia. At the same time, more than two thirds of financial assets are regulated by the two largest players in the financial market - the Swedish banks Swedbank and SEB. The stable economic development of the country allows expanding the scope of bank lending.

Estonian public external debt remains the lowest among the countries of the European Union, accounting for 10% of the gross domestic product as of 2012. In the mid-nineties, the figure was equal to about half of GDP, and by 2010 it reached 120% of the gross domestic product. More than half of the debt is financial liabilitiescredit institutions.

Structure of the state's foreign trade by industry

Estonia's main trading partners are its northern neighbors, as well as Russia and the European Union. The main groups of foreign trade are mineral fertilizers, fuels and lubricants, manufactured goods, machinery and equipment, and various finished products.

People's income, employment and labor force

The largest share of the Estonian population (67%) is able-bodied citizens - modern Estonia does not suffer from a lack of labor force. The economy is provided with labor resources, but the average unemployment rate is 6%, which is in line with the global average. For one hour (when working with hourly pay), a doctor can receive a little more than nine euros, junior medical staff - five euros, nurses, nannies and orderlies - three euros. The average salary before taxes reaches 1105 euros. The minimum wage is 470 euros per month.