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Concept
Economy of Estonia
Summary
The economy of Estonia is an advanced economy and the country is a member of the European Union and the eurozone. Estonia's economy is heavily influenced by developments in the Finnish and Swedish economies.
Before the Second World War, Estonia's economy was based on agriculture, but there was a significant knowledge sector, with the university city of Tartu known for scientific contributions, and a growing industrial sector, similar to that of neighbouring Finland. Products, such as butter, milk, and cheese were widely known in the west European markets. The main markets were Germany and the United Kingdom, and only 3% of all commerce was with the neighbouring USSR. Estonia and Finland had a relatively similar standard of living.
The USSR's occupation and annexation of Estonia in 1940 and the ensuing Nazi German and Stalinist Soviet destruction during World War II crippled the Estonian economy. The subsequent Soviet occupation and post-war Sovietization of life continued with the integration of Estonia's economy and industry into the USSR's centrally planned structure.
After Estonia moved away from communism in the late 1980s, restored its independence in 1991 and became a market economy, it emerged as a pioneer in the global economy. In 1992, the country adopted the Estonian kroon as its own currency, and this greatly stabilised the economy. In 1994, it became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. Estonia received more foreign investment per capita in the second half of the 1990s than any other country in Central and Eastern Europe. Between 2005 and 2008, the personal income tax rate was reduced from 26% to 21% in several steps.
The country has been quickly catching up with the EU-15; its GDP per capita having grown from 34.8% of the EU-15 average in 1996 to 65% in 2007, similar to that of Central European countries. It is already rated a high-income country by the World Bank.
Official source
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