Cover IMF Staff Country Reports
Republic of Estonia: Selected Issues
Author: International Monetary Fund. European Dept.
Series:
IMF Staff Country Reports
Volume/Issue:
Volume 2024: Issue 178
Language:
English
Publication Date:
21 Jun 2024
DOI:
https://doi.org/10.5089/9798400278334.002
ISBN:
9798400278334
ISSN:
1934-7685
Pages:
69
Keywords:
labor market liberalization; Within-Sector allocative efficiency; export market share; export share decline; TFP dynamics; Estonia's government spending; tax revenue-to-GDP ratio; Total factor productivity; Exports; Capital adequacy requirements; Productivity; Baltics; Global; Europe
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This Selected Issues paper explains Estonia’s recent losses of export market shares. Estonia’s export market share has fallen sharply, signalling that exporters have difficulties to keep up with foreign competition. While the immediate cause of this 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, this 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—a sign of weakening external competitiveness and declining relative productivity. A few high-level policy implications can be drawn. Addressing the erosion of external competitiveness will require structural reforms aimed at enhancing productivity, removing impediment to a structural transformation of the economy toward more technologically intensive and higher value-added products and services, as well as efforts to 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.
Cover IMF Staff Country Reports
IMF Staff Country Reports
ISSN:
1934-7685
Publisher:
International Monetary Fund