Preconditions for transforming the economy

For the Baltic states, their geographical position between Scandinavian countries and Russia has been an important determinant of economic, political, social and cultural development. In good times this has meant a large trade flow and accumulation of wealth and in bad times political dependence. The earlier experience of independent statehood from the period between the two world wars was common for the Baltic states, and it is one of the main differences compared to other former republics of the Soviet Union. This historical experience has been very important for the creation of institutions necessary for a functioning state.

In the case of Estonia, being Finland’s neighbour has been quite crucial. The closeness of Estonian and Finnish languages was important especially during the first years of independence. Considering more general issues vital for the market economy, quite a clear idea of what the market economy is in general, and what the main rules of a democratic society are spread through TV and other communication channels. This compensated partly for the tightly closed Iron Curtain, even compared to several Central European countries such as Hungary or Poland during the communist period, and made an exchange of information possible. The close economic connection played a significant role in the reorientation of foreign trade from East to West and supported later integration with the Western world and particularly with the EU.

Local natural resources, of which oil shale is of the greatest importance, have substantially influenced the structure and dynamics of the Estonian economy. In the 1920s, the mining of oil shale was begun for the production of oil for various industrial uses and for the chemical industry. After the Second World War, the oil shale-based power engineering industry was created. This industry also produced the majority of electricity in Estonia in the 1990s.

In the 1970s and 1980s the Baltic states had all the typical features of industrial countries. The most important characteristics were a much larger proportion of manufacturing and agriculture than in developing countries and the low level of infrastructure, service and trade sectors in the economy. The transition to a market economy has been accompanied by the introduction of modern banking and finance, and markets for real estate and business services. The retail and wholesale trade also grew rapidly.

In the 1980s substantial investments were made in transportation. The most important project was the Muuga port near Tallinn. Since independence was regained, the port has been increasingly important for the Estonian economy in serving domestic needs and transit trade.

Details about this article