Studies Eastern European Markets
Eastern European Markets
November 2004

Jaakko Kilpeläinen
Development of Transit Traffic via Finland in 1997-2003
NORDI publication 8, 2004
Lappeenranta University of Technology

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    Summary

The Baltic states were formerly Soviet republics, which means that their independence and transition period started in 1991. In comparison to CEEC´s (Central and Eastern European Countries), the Baltic states had especially difficult early period of post-communism.

Since the mid-1990s the Baltic states have grown more rapidly than other TEs with EU accession. Amid strong economic dynamism in Estonia, Latvia and Lithuania, relative price stability has been achieved. Current accounts, especially in Estonian case, show rather high deficits. ERDI values have declined: this fact is an important background factor in current account inbalancies.

The Baltic states have been rather successful in attracting FDI in the transitional period. Estonia has been the clearly most successful economy in the FDI-competition in the Baltic region.

Even if economic growth in the Baltic states has been very strong since the mid-1990s, no full employment has been achieved. There are some 400.000 people out of work in the region. This figure is relatively low in pan-Europeam framework. Thus, the Baltic states are not going to cause considerable turmoil by labour mobility in the Eastern enlargement process of the EU.

There are some structural problems in the Baltic economies. The rural economy, especially in Lithuania, but also in Latvia, is still employing a rather big part of population. The primary sector is in need of some modification, which takes time.

Public finance is in rather good shape in all Baltic states. There are no excessive budget deficits and high public sector debt burdens in the three TE:s under review.

Its is asssumed that Estonia, Latvia and Lithuania are all interested in monetary union (euro) membership after entering the EU. New menbers of EMU are required to be in ERM (European exchange rate mechanism) for two years before entering the monetary union. It can be assumed that the Baltic states will enter EMU relatively soon. Exact dates cannot be predicted in this context . It can only be pointed out that ERDI values are presently high in all Baltic states which means that exchange rates are not ”in equilibrium”. In an optimal case, exchange rates of new EMU-members ought to be in relative equilibrium.

Estonia is more prosperous than her Baltic neighbours, Latvia and Lithuania. However, differences in living standard within the Baltic region are not striking. This is obviously good news from the regional stability point of view. No excessive migration within the region after the EU-entry can be expected to happen.

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