Estonia in transition under the restrictions of European institutional competition

Diana Eerma and Jüri Sepp (juri.sepp@ut.ee)

No 2009-02, Discourses in Social Market Economy from OrdnungsPolitisches Portal (OPO)

Abstract: After the fundamental changes of the early 1990s and before Estonia joined the EU, many neo-liberal economists regarded Estonia as their model student - due to the country's economic principles. Economic growth has been positive from 1995 on (except in 1999) until 2007, and above the EU average. During this period, GDP per capita and productivity have grown from just under a third of the EU average to 70 per cent of it in 2007. Today the attitude towards Estonia has slightly changed, because Estonia has involved into global economic crises and in decline stage of local trade cycle simultaneously. The transformation process in Estonia is an extreme case within a number of similar cases in Central and Eastern Europe. After regaining its political independence, Estonia established a liberal and democratic society. Since 1992 Estonia has pursued one of the most liberal trade policies in the world. The state budget is subject to the balanced-budget principle. In as early as 1998, 85% of companies were privatized. The currency board system tied the Estonian currency, the Eesti kroon (EEK), to the German mark (DEM) at a rate of about 8:1. To round the picture off: agricultural subsidies were abolished and a flat income tax rate was introduced. This article seeks to analyze Estonia's transition under the restrictions of European institutional competition in more detail. The first and second part analyses some areas of transition macro- and micro-policies that have been suggested that Estonia applies in order to a) join EU and b) catch up within the EU. The third part deals with Estonia's position in international economic competition up to the present time. We define Estonia's strong and weak points in system competition today as result the transition policy. As can be shown, there is still a great need for convergence in economic performance compared to the EU average.

Keywords: Institutional economics; transformation; economic integration; Estonia (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:opodis:200902

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