{
  "title": "Republic of Estonia: Selected Issues",
  "publication": "IMF Staff Country Reports, January 22, 2020",
  "sourceUrl": "https://www.imf.org/en/publications/cr/issues/2020/01/21/republic-of-estonia-selected-issues-48964",
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  "summary": "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.",
  "sections": [
    {
      "heading": "Integration of Global Value Chains (GVCs) into Competitiveness Analysis",
      "content": "- Standard real effective exchange rate (REER) indexes assume trade is only in final goods.\n- Estonia is highly integrated into GVCs, like most European economies.\n- Competitiveness assessments should consider trade in value added rather than only gross trade flows.\n- The paper uses a structural model to assess competitiveness and exposure to trade shocks accounting for GVC participation in Estonia."
    },
    {
      "heading": "Findings on REER and Competitiveness",
      "content": "- An analysis using a REER index that considers the GVC architecture suggests potential competitiveness problems in Estonia.\n- Standard REER measures that ignore GVCs can misstate competitiveness for an economy with deep GVC integration."
    },
    {
      "heading": "Estimated Impacts on Value Added Exports and Real GDP",
      "content": "- The paper 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.\n- Trade-tension-induced tariff hikes may have important costs for value added produced in Estonia."
    },
    {
      "heading": "Policy Implications and Risk Considerations",
      "content": "- Competitiveness monitoring and policy design should incorporate GVC-aware indicators (trade in value added and GVC-informed REER measures).\n- Policies that ignore GVC linkages risk understating exposure to exchange rate movements and tariff shocks.\n- Addressing potential REER overvaluation (in GVC terms) is relevant for sustaining value added exports and real GDP growth.\n\nIMF Staff Country Report, \"Republic of Estonia: Selected Issues\", January 22, 2020\n\n---\n\n Content in this bundle\n\n- Republic of Estonia: Selected Issues; IMF Country Report No. 20/13; January 2, 2020\n  - Republic of Estonia: Selected Issues; IMF Country Report No. 20/13; January 2, 2020 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Republic of Estonia: Selected Issues; IMF Country Report No. 20/13; January 2, 2020 (PDF){rel=\"external\" type=\"application/pdf\"}"
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    "Published: January 22, 2020",
    "Series: IMF Staff Country Reports",
    "Standard real effective exchange rate (REER) indexes assume trade is only in final goods.",
    "Estonia is highly integrated into GVCs, like most European economies.",
    "Competitiveness assessments should consider trade in value added rather than only gross trade flows.",
    "The paper uses a structural model to assess competitiveness and exposure to trade shocks accounting for GVC participation in Estonia.",
    "An analysis using a REER index that considers the GVC architecture suggests potential competitiveness problems in Estonia.",
    "Standard REER measures that ignore GVCs can misstate competitiveness for an economy with deep GVC integration.",
    "The paper 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.",
    "Trade-tension-induced tariff hikes may have important costs for value added produced in Estonia.",
    "Competitiveness monitoring and policy design should incorporate GVC-aware indicators (trade in value added and GVC-informed REER measures).",
    "Policies that ignore GVC linkages risk understating exposure to exchange rate movements and tariff shocks.",
    "Addressing potential REER overvaluation (in GVC terms) is relevant for sustaining value added exports and real GDP growth.",
    "**Republic of Estonia: Selected Issues; IMF Country Report No. 20/13; January 2, 2020**"
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