Republic of Estonia: Selected Issues
IMF Staff Country Reports, June 21, 2024
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Bibliographic details
- Published: June 21, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400278334.002
Overview and main findings
- Estonia’s export market share has fallen sharply, signalling that exporters have difficulties to keep up with foreign competition.
- The immediate cause of the decline can be traced back to an adverse combination of external shocks triggered by the war in Ukraine.
- Signs of faltering export performance surfaced already in the aftermath of the global financial crisis, and thus predate recent shocks.
- Using a constant share decomposition, the paper shows that, unlike in Latvia and Lithuania, a significant portion of the decline in Estonia’s export share can be attributed to the “intensive margin,” i.e., a shrinking share of Estonia’s exports in the main destination markets—interpreted as a sign of weakening external competitiveness and declining relative productivity.
Analysis and methodology
- Analytical approach: constant share decomposition to separate extensive and intensive margins of export share changes.
- Comparative finding: the intensive-margin driven decline in Estonia contrasts with patterns observed in Latvia and Lithuania.
- Interpreted drivers: weakening external competitiveness and declining relative productivity in Estonia’s export sectors.
Policy implications and recommendations
- Addressing the erosion of external competitiveness will require structural reforms aimed at enhancing productivity.
- Remove impediments to a structural transformation of the economy toward more technologically intensive and higher value-added products and services.
- Ensure that real wage growth remains closely aligned with productivity growth.
- By addressing these underlying challenges, Estonia can restore external competitiveness and ensure continued convergence toward the income levels of EU most advanced economies and Nordic neighbors.
Subjects and keywords
- Subject: Capital adequacy requirements, Expenditure, Exports, Financial regulation and supervision, International trade, Production, Productivity, Total factor productivity
- Keywords: Baltics, Capital adequacy requirements, Estonia's government spending, Europe, export market share, export share decline, Exports, Global, labor market liberalization, Productivity, tax revenue-to-GDP ratio, TFP dynamics, Total factor productivity, Within-Sector allocative efficiency
Content in this bundle
- Republic of Estonia: Selected Issues; IMF Country Report No. 24/178; May 23, 2024