Question

Case Study Of Estonia:Transition, EU Membership , and The Euro (9-713-479)

Analyze the national diamond over time. What allowed Estonia to upgrade competitiveness faster than many other transition countries?

Answer 1

Estonia was a critical part of the Russian Soviet Union till 1990's when it primarily gained independence due to the breakdown of the union respectively.

Over the years, the political environment in the country was such, that they believed in the core principles of a free market economy in which companies would be able to freely setup themselves within the country and also to be able to export or import goods much easily in and out of the country respectively.

The prime reason for an easier transition of Estonia was the political mindset of the people was such that they knew that they could gain big if they allowed for free trade to take place within its political boundaries respectively.

For this, the country adopted policies in which they abolished trade taxes and quotas and allowed foreign companies to freely enter their markets and do business and also abolished any restriction on them being able to take their profits back to the country.

Once this policy was implemented at the correct time, it became easier for the country to be able to upgrade their compitiveness, primarily because large inflow of capital resources happened in a very small period of time.

On the other hand, the prime mistake which most other transition countries have done is that they have previously adopted protectionism as a method for development which in turn only hampered growth and led to the formation of such organizations which did no good for the society or the economy respectively.

Thus, allowing foreign companies to enter allowed for a shift of the economy from being agriculture based, to being industrial and manufacturing based. This increased the overall competitiveness of the country along with increased capital inflow because of the policies listed above.