Republic of Estonia: Selected Issues

International Monetary Fund

No 2020/013, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper on Estonia examines impact of assessing competitiveness and exposure to shocks integrating global value chains (GVCs). This paper strengthens the analytical underpinnings of competitiveness assessments and exposure to shocks by incorporating GVCs. Standard real effective exchange rates (REER) indexes assume trade is only in final goods. However, like most European economies, Estonia is highly integrated into GVCs. This implies that assessments of competitiveness should consider trade in value added. Based on a structural model, the paper assesses competitiveness and exposure to trade shocks accounting for the GVC participation in Estonia. The analysis using a REER index considering the GVC architecture suggests potential competitiveness problems in Estonia. The paper also estimates the impact of overvaluation (and appreciation) of the GVC related REER measure on value added export and real GDP growth and finds observable effects. Further, trade tension induced tariff hikes may have important costs for value added produced in Estonia.

Keywords: ISCR; CR; CFT; CFT supervision; wage distribution; income inequality; wage ratio; EFSA participation; Anti-money laundering and combating the financing of terrorism (AML/CFT); Income inequality; Gender inequality; Real effective exchange rates; Wages; Global; Baltics; Tariffs; IssuesRepublic of Estonia; Income distribution (search for similar items in EconPapers)
Pages: 45
Date: 2020-01-22
New Economics Papers: this item is included in nep-cis
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