• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Estonian Economic Reform Why did Estoniamove from a planned economy to a market economy?

Extracts from this document...

Introduction

Estonian Economic Reform Why did Estonia move from a planned economy to a market economy? (5) When Estonia first gained independence after the First World War, it enjoyed great economic success and development during the twenty-year inter-war period. However, the economic gains were negated by fifty years of Soviet occupation following World War II, leading to economic stagnation. The central government of the Soviet Union had destroyed the Soviet Republic's economy as a whole, as the decision of what to produce, how much to produce and for whom to produce was placed solely on the government. Thus inefficient monopolistic state-owned industries employing the entire population regardless of skill level churned out poor quality goods that nobody wanted, while the rationing of basic foodstuffs was part of daily life. With the loss of the profit motive and no hierarchy system where the better were rewarded, both people and companies had little motivation to be efficient or innovative. The Estonian economy was in reality just the sum of the enterprises physically located on one territory. ...read more.

Middle

But political and economic instability in the CIS, coupled with the complete lack of monetary discipline within the ruble zone, offered little international credibility for the nations using the ruble. With the removal of subsidies on a multitude of goods, prices rose to real levels. In 1992 inflation exceeded 1,000 percent. Without the Soviet Union juggernaught providing cheap raw materials and a market for exports, the Estonian economy was left completely exposed. Inefficient state companies were forced to close, aggravating unemployment and dragging down GDP: the cumulative decline of the GDP during the period 1990-1994 was 36%. Foreign investment was desperately needed; enterprise was almost non-existent and capital had to be imported. What are the benefits of its transition? (5) Today, Estonia has a booming economy that is rapidly reaching western standards. Its economic success is based on a liberal economic policy, a currency board system with a stable currency pegged to the Deutschmark/Euro and a balanced budget (The Estonian government solved the problem of rocketing inflation by introducing a new currency, the Kroon, in 1992. ...read more.

Conclusion

The structure of the Estonian GDP has become rather close to that of the GDP of developed countries. These structural changes are a result of the deep economic decline experienced during the difficult years of transition and foreign trade shock (a rapid change of terms of trade, and a deep decline of trade with Russia). These shocks enabled Estonia to develop an export-orientated and well-oiled free market economy, which in turn brought economic growth and an increase of general wages well ahead of inflation. Estonia is now investing heavily in the technology sector, and 40% of its citizens now use the internet. With living standards rising steadily, more and more economists are beginning to call the difficult transition Estonia has endured the 'Estonian Economic Miracle'. Estonian economic indicators 1995-2000 1995 1996 1997 1998 1999 2000 GDP, billion kroons 40.9 52.4 64.0 73.5 76.3 84.4 Real GDP change rate, % 4.6 4.0 10.4 5.0 -0.7 6.4 Industrial output, change % 1.9 2.9 14.6 4.1 3.8 -9.1 Consumer price index, % 29.0 23.1 11.2 8.2 3.3 4.0 Unemployment, % 9.7 10.0 10.5 9.9 12.4 13.4 Average monthly salary, kroons 2697 3310 4027 4389 4799 5279 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. In a Planned Economy, the government decides what is produced, by whom and for ...

    and those who do not (workers). In a command economy, the nation resembles an extended family or a company holding a monopoly. There is no competition among producers and consumers and no negotiation between supply and demand; therefore, the price signals are distorted leading to a misallocation of resources and terrible waste.

  2. Free essay

    What are the main characteristics of a free market economy and centrally planned economy?

    As a result on the greater concentration on producing capital goods, the curve will after a long time, shift to the right, as can be seen in Figure 2, which indicates economic growth, and the country will be more self-sufficient.

  1. Outline the main features of a market economy and compare it to a Command ...

    There are also many weaknesses to the command economy. One of the biggest weaknesses in a command economy is that entrepreneurs and consumers have no choice. Entrepreneurs have no choice in what they produce as the state decides on what is produced and work for the state and not in

  2. Assessment of the market economy system

    From the producers' point of view, they try to make more producer surplus (profit). I think there is a simplified mathematic formula representing producer surplus: Producer surplus = (Price - Cost) * Quantity of Sale In perfect competitive market, individuals have no power to control the price of the goods and services.

  1. UK Membership of the European Monetary Union.

    Or, we can play to our strengths as a global trading nation. Of course we want to develop trade and prosperity in Europe. Of course we want to cooperate with our European partners. But we also want to nurture our traditional links with the USA, Asia and the Commonwealth.

  2. Chinese economy sets for soft landing in 2005.

    But China needs to undertake major improvements to remove constraints to its future competitiveness, Lopez-Claros said. China needs to strengthen its property rights and the independence of its judiciary. Crime and corruption stand alongside poor accounting standards and weak financial institutions as impediments that should be removed.

  1. Taxation Reform in Australia

    This reform was effective in resource allocation as it caused firms to either pass on this tax to consumers, thus reduce demand or to reduce their costs through efficient resource allocation and maintain demand. Although it is advantageous for efficiency, it is disadvantageous as it is not equitable or simple.

  2. Discuss the extent to which the economic theories in the Market's Reader can be ...

    The new economy is about new organizational models as well, emphasizing teamwork and empowerment. It is about flat organizational structures with decision making no longer in the hands of a single boss. Growth among some of these new or reorganized firms is staggering.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work