## Republic of Estonia: Selected Issues

_IMF Staff Country Reports, January 22, 2020_

## Source details

**Canonical URL:** [Republic of Estonia: Selected Issues](https://www.imf.org/en/publications/cr/issues/2020/01/21/republic-of-estonia-selected-issues-48964)

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- [Markdown version](/en/publications/cr/issues/2020/01/21/republic-of-estonia-selected-issues-48964/index.md)
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## Bibliographic details
- Published: January 22, 2020
- Series: IMF Staff Country Reports

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### Integration of Global Value Chains (GVCs) into Competitiveness Analysis
- 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.

### Findings on REER and Competitiveness
- 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.

### Estimated Impacts on Value Added Exports and Real GDP
- 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.

### Policy Implications and Risk Considerations
- 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.

*IMF Staff Country Report, "Republic of Estonia: Selected Issues", January 22, 2020*

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## Content in this bundle

- **Republic of Estonia: Selected Issues; IMF Country Report No. 20/13; January 2, 2020**
  - [Republic of Estonia: Selected Issues; IMF Country Report No. 20/13; January 2, 2020 (Markdown version)](/-/media/files/publications/cr/2020/english/1estea2020002.pdf.md){rel="alternate" type="text/markdown"}
  - [Republic of Estonia: Selected Issues; IMF Country Report No. 20/13; January 2, 2020 (PDF)](/-/media/files/publications/cr/2020/english/1estea2020002.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/cr/issues/2020/01/21/republic-of-estonia-selected-issues-48964_