Estonia, the New EU Economy. Building a Baltic Miracle?

Citation

Maciulis, N. (2007), "Estonia, the New EU Economy. Building a Baltic Miracle?", Baltic Journal of Management, Vol. 2 No. 1, pp. 110-111. https://doi.org/10.1108/17465260710720282

The book explores three important dimensions of transition and economic integration – growth and financial development, structural and organizational change and building of international networks. Selection of studies investigates a variety of prevailing and emerging problems that stem from the processes of transition and integration. Among other interesting and relevant topics, Estonia, the New EU Economy covers convergence process in the transition countries, financial constraints in investment, labor reallocation and structural changes, interactions of cultural elements, transforming Estonian organizations, internationalization and de‐internationalization.

Analysis of sustainability of the macroeconomic performance describes thoroughly Estonian currency board arrangement (CBA), but fails to mention the bitter experience of speculative attack against Estonian kroon in 1997. It has to be admitted, that immediate speculative pressure dispersed fairly quickly once self‐regulation processes of the monetary system had manifested themselves and positive proof was obtained about the resistance of the financial sector and the economy. However, trust had indeed somewhat diminished after these events. Analysis of causes and long lasting (if any) effects of such pressures could have been an interesting and important contribution to the study of financial developments and integration of Estonia.

The statement that “Estonia differs from the other transition countries in its quite stable and non‐interventionist macroeconomic policy framework” isn't necessary true, because Lithuania also has CBA, which was at least as stable as Estonia's. Not to mention exemplary Slovenian macroeconomic policies, which empowered it to adopt euro – first among other new EU entrants.

Panel data analysis of financial constraints in investment reveals some interesting (albeit not completely unanticipated) results. Namely:

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  Lack of foreign ownership makes a firm more dependant on internal cash flows;

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  Small companies are more financially constrained;

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  Small domestic companies are especially constrained in their access to finance.

These results should attract the attention of Estonian and other integrating countries' policy makers, and encourage the policies which would obstruct the “evolution towards dual industrial structure”. However, it is not clear, whether this kind of relationship between ownership and financial constraints is a special feature of Estonia, or it is also observed in other new EU member countries.

Another valuable contribution of this book is a study on job creation and destruction processes in Estonia. Authors provide extensive analysis and reasoning of the high rate of labor reallocation, however a little disappointing was the disregard to unprecedented phenomenon of emigration of working force in new EU economies and its possible (obvious?) effect to job creation and destruction process.

Perhaps the most exciting (and least addressed in relevant literature) study in this book investigates the degree of conflict between past values and these required of a modern western nation. The study is motivated by authors' belief, that a “better understanding of the role of the values and norms that shape ideas and institutions in a society is essential for better understanding the determinants of economic growth”. They claim that the most important terminal individual values (states of existence) are alike for the Russian‐speaking populations in Estonia, Latvia and Lithuania, whereas the instrumental values (modes of behavior) and collective attitudes vary considerably. Consequently, they refute a common surmise of foreign investors – that the three Baltic States can be regarded as homogenous cultural context.

Two consecutive chapters offer an unusual juxtaposition of studies where one of them analyzes factors affecting the internationalization process and another explores possible need of de‐internationalization. Results offer insights on both processes' possible influences on economic growth.

Throughout the book, the authors not only analyze the past achievements, but also accurately pinpoint the dangers and challenges of future convergence processes.

The editors have succeeded in collecting and integrating a variety of studies, which employ “unusually broad range of analytical competencies” and assess various tensions, but failed to realize the difference between de‐internationalization and de‐industrialization.

Despite occasionally somewhat unjustified self‐praising tone and, the Estonia, the New EU Economy is a valuable contribution to transition and European integration studies and various audiences should find interest in it.