A C T A U N I V E R S I T A T I S L O D Z I E N S I S ___________ FOLIA O E C O N O M IC A 198, 2006
Maurizio Grassini , Tiiu Paas
O V E R V I E W OF THE ESTONIAN E C O N O M Y
AND T H E PROGR ESS OF THE M U L T I S E C T O R A L
ESTONIAN MODEL
I. I N T R O D U C T I O N
l-ilteen y e a r s a g o E sto n ia re g a in e d its i n d e p e n d e n c e a n d b e g a n a lo n g tr a n s i tion f ro m b e i n g a reg io n o f the S o v ie t U n io n to b e c o m e M e m b e r S ta te o f the E u ro p e a n U n io n . T h i s im p lie d th e tr a n s f o r m a t io n o f its e c o n o m i c s y s t e m from central p la n n e d e c o n o m y to a m a rk e t e c o n o m y . T h e p r e se n t e c o n o m i c s y s t e m has been a c h ie v e d w ith the a d o p t io n o f the o b lig a tio n s related to the E U m e m b e r s h ip .
A c c o r d i n g to t h e p r o c e d u r e s for c o - o r d i n a t i o n o f E U b u d g e t p o lic ie s , th e m u ltila te ra l s u r v e i l l a n c e p r o c e d u r e d ic ta t e s th e s u b m i s s i o n o f s ta b ili ty p r o g r a m s and c o n v e r g e n c e p r o g r a m s fo r e a c h M e m b e r S tate s. T h e s e p r o g r a m s m u s t p r i m a rily r e f e r to th e c o n v e r g e n c e c r it e r ia e s ta b l is h e d in t h e M a a s t r i c h t T r e a t y ; b o m a n e c o n o m i c p o in t o f v ie w , th e s e c r ite r ia re g a rd m a c r o e c o n o m i c v a r ia b le s su ch a s b u d g e t d e f ic its , in f la tio n a n d in te rest rates.
L o o k i n g at th e e c o n o m i c c o u n t r y p r o b l e m s , t h e p o l i c y m a k e r n e e d s 3 m e s o e c o n o m i c r e p r e s e n t a t i o n o f th e e c o n o m y . T h e e v a l u a t i o n o f m a n y e c o n o m ic p o l i c y d e c i s i o n s m a y e a s il y b e a c c o m p l i s h e d b y m e a n s o f m a c r o e c o n o m ic m u l t i s e c t o r a l m o d e l s , w h e r e m a n y e c o n o m i c v a r i a b l e s a r e r e p r e s e n t e d ' v >th a de ta il s u i t a b l e for th e p o lic y m a k e r ’s n e e d s.
I his p a p e r is d i v i d e d in tw o se c tio n s. T h e first s e c ti o n r e p o r t s k e y fig u re s and c o m m e n t s a b o u t r e c e n t d e v e l o p m e n t s o f t h e E s to n ia n e c o n o m y ; th e s e c o n d se ctio n c o n t a i n s th e c o r n e r s t o n e o f a m u lt is e c to r a l m a c r o e c o n o m i c m o d e l for E s to nia t o g e t h e r w ith a lim ite d a m o u n t o f ( s e c to r a l) e q u a t i o n s w h i c h e x p l a i n h o w " n p o r t s m a y c o m p e t e a g a i n s t d o m e s t i c p r o d u c t i o n a n d th e e v o l u t i o n o f l a b o u r P ro d u c tiv it y for a lim ite d n u m b e r o f in d u s t r y s e cto rs. A s e t o f s i m u l a t i o n ex e r- c 'se s s h o w s th e p o w e r o f th is m o d e l l i n g a p p r o a c h to g e t p o lic y m a k i n g i n s i g h ts °1 th e w o r k i n g o f t h e e c o n o m y .
^University o f Florence, Italy. University o f Tartu, Estonia.
II. R E C E N T D E V E L O P M E N T S IN T H E E S T O N I A N E C O N O M Y 2.1. E c o n o m i c g r o w t h a n d its m a in c o m p o n e n t s E s to n ia like tw o o t h e r B a ltic S ta te s - L a t v i a a n d L i t h u a n i a - a r e th e o n ly f o r m e r S o v i e t r e p u b l i c s tha t a r c th e n e w m e m b e r c o u n t r i e s o f th e E u r o p e a n U n io n s in c e M a y 2 0 0 4 . T h e s u c c e s s o f t h e E s to n ia n e c o n o m i c d e v e l o p m e n t a s a r e s u lt o f r a t h e r s t a b l e e c o n o m i c p o l i c y 1 w h i c h h a s b e e n d e v e l o p e d a f t e r r e g a i n i n g i n d e p e n d e n c e in 1991 is c o m p a r a t i v e l y h i g h ly e s t i m a t e d b y v a r i o u s in te rn a tio n a l e v a l u a t i o n s . F o r i n s t a n c e , In te r n a t io n a l I n stitu te o f M a n a g e m e n t D e v e l o p m e n t ( I M D ) W o r l d C o m p e t i t i v e n e s s Y e a r b o o k ( W C Y ) n a m e d E s t o n i a t h e m o s t c o m p e t itiv e E u r o p e a n p o s t - s o c i a l i s t c o u n t r y a m o n g 4 9 le a d i n g a n d e m e r g i n g w o rld e c o n o m i e s in c l u d e d in t h e I M D c o m p e t i t i v e n e s s s u r v e y . A c c o r d i n g to th e I M D e v a l u a t i o n s 2 0 0 2 , E s t o n i a p l a c e d o n th e 2 1 s t p o s it io n . S i n c e 2 0 0 3 , th e I M D h a s d i s t i n g u i s h e d th e c o u n t r i e s into tw o g r o u p s : th e b ig c o u n t r i e s ( p o p u l a t i o n o v e r 2 0 m il lio n ) a n d s m a l l c o u n t r i e s ( p o p u l a t i o n u n d e r 2 0 m i l l i o n ) , a n d E s to n ia p l a c e d o n the 17th p l a c e a m o n g 29 sm a ll n a t i o n s ( I M D , 2 0 0 3 ) . A n o t h e r o r g a n i z a tio n e v a l u a t i n g c o m p e t i t i o n is th e W o r l d E c o n o m i c F o r u m ( W E F ) , w h o s e c o m p e t i t i v e n e s s s u r v e y in c lu d e s 120 c o u n t r i e s . T h e W E F c o m p e t i t i o n g r o w t h i n d e x ( g r a d e s n a t io n a l e c o n o m i c g r o w t h p o te n tia l p e r c a p i t a fo r th e n e x t 5 - 8 y e a r s ) p la c e d E s to n ia in th e 2 2 n d p o s it io n ; m i c r o e c o n o m i c in d e x ( g r a d e s n a tiona l p r o d u c t i v i t y o r G D I ’ p e r c a p ita ) g i v e s E s to n ia 2 8 th p o s i t i o n a m o n g 120 e c o n o m i e s ( W E F , 2 0 0 3 ) . T h u s , a lso a c c o r d i n g to th e W E F e v a l u a t i o n s , E s to n ia g o t th e h i g h e s t c o m p e t i t i v e n e s s g r a d e a m o n g the E u r o p e a n p o s t - s o c i a l i s t e c o n o m i e s . O n e o f t h e c h a r a c t e r i s t i c s tha t d is t i n g u i s h e s E s t o n i a ’s e c o n o m y is th e high level o f e c o n o m i c f r e e d o m . T h e H e r i t a g e F o u n d a t i o n ’s e c o n o m i c f r e e d o m in d e x 2 0 0 4 p la c e d E s to n ia o n th e 6 th p o s it io n a m o n g 161 o t h e r n a t io n s . S u c h a h ig h p l a c e w a s g i v e n to E s to n ia d u e to the liberal tr a d e a n d o p e n f o r e ig n in v e s t m e n t p o lic ie s , lo w c o n t ro l o v e r p r ic e s a n d a w e l l - d e v e l o p e d b a n k i n g s e c t o r ( H e r i t a g e F o u n d a t i o n , 2 0 0 4 ) . E c o n o m i c f r e e d o m a n d th e o p e n n e s s o f th e E s t o n i a n e c o n o m y h a v e p la y e d a n i m p o r t a n t r o le in a t t r a c t i n g f o r e ig n d ir e c t i n v e s t m e n t s a n d p r o m o t i n g e c o n o m i c g r o w t h , p a r t i c u l a r l y in th e c o n t e x t o f p r e p a r i n g th e E U a c c e s s i o n . E s to n ia w a s n o m i n a t e d a s a n E U c a n d i d a t e c o u n t i y in 1 9 9 7 2. S in c e th a t t i m e t h e e c o
1 A lter regaining the independence in 1991, Estonian governm ents have followed economic policy aim ed at: 1) liberalization o f prices; 2) pri vatization o f state-owned enterprises; 3) introduc tion o f a separate currency by means o f a currency board system; 4) maintaining a conservative fiscal policy; 5) implem enting a very liberal foreign trade regime.
: The EU candidate countries o f the eastward enlargement formed two groups: 1) the Luxem bourg group o f candidate countries (formed in 1997): Poland, the Czech Republic, Hungary,
Esto-n o m i c g r o w t h o f th e E s t o Esto-n i a Esto-n e c o Esto-n o m y h a s b e e Esto-n fa s te r th a Esto-n th a t o f th e E u ro ar e a ( F ig u r e 2.1). T h e e x c e p t i o n a l p e r i o d s w e r e o n l y th e 4 th q u a r t e r o f 1998 a n d the first t h r e e q u a r t e r s o f 1999 d u e to th e R u s s i a n c r is i s in A u g u s t 1998. E s t o n i a ’s e c o n o m y a l s o c o n t i n u e d to g r o w d e s p i t e th e b a c k d r o p o f t h e g lo b a l e c o n o m i c s l o w d o w n a n d th e d e c l i n i n g w o r l d d e m a n d a n d t h u s w o r s e n i n g c o n d i t i o n s for e x p o r t in t h e y e a r s 2 0 0 1 - 2 0 0 3 . In 2 0 0 3 E s t o n i a ’s e c o n o m i c g r o w t h s l o w e d d o w n to 4 . 7 % ( T a b l e 2.1). T h i s i n d i c a t o r is l o w e r th a n th e a v e r a g e g r o w t h o v e r th e last t h r e e y e a r s b u t c o n s i d e r a b ly h i g h e r t h a n th e E U a n d E u r o ar e a e c o n o m i c g r o w t h ( r e s p e c t i v e l y 0 . 8 % in EU a n d 0 . 4 % in E u ro a r e a). In r e c e n t y e a r s E s t o n i a ' s e c o n o m i c g r o w t h w a s m a i n l y s u p p o r t e d b y i n v e s t m e n t s a n d p r iv a t e c o n s u m p t i o n ( T a b l e 2.1). A s in d ic a t e d in th e T a b l e 2 .1 , in 2 0 0 3 , th e g r o w t h r a t e o f v a l u e a d d e d h a s b e e n th e m o s t r e m a r k a b l e in in d u s t ry . It d e c l i n e d in all s e c t o r s a n d t u r n e d o u t to b e n e g a t i v e in a g r i c u l t u r e s e cto r. T h e s l o w d o w n in in d u s t r y s e c t o r ( p a r t i c u l a r l y in p r o c e s s i n g i n d u s t r y ) w a s c a u s e d by in h ib i te d e x p o r t g r o w t h a n d s l o w d e v e l o p m e n t o f s u b - c o n t r a c t i n g in d u s trie s . At the s a m e ti m e th e g r o w t h o f v a l u e a d d e d in t r a n s p o r t a n d c o m m u n i c a t i o n s s e c to r s a c c e l e r a t e d , d u e to o p t i m i z a t i o n o f c o s ts in t r a n s i t c o m p a n i e s a n d i m p r o v e d p r o f it a b il ity o f t e l e c o m m u n i c a t i o n s sector. R eal g r o w t h o f real e s ta t e a n d o t h e r b u s i n e s s r e la te d s e r v i c e s a l s o s h o w e d a c c e le r a tio n , s u p p o r t e d b y r is e o f real e s ta t e m a r k e t a n d g o o d e c o n o m i c r e s u lts o f c o m p a n i e s in v o l v e d in in f o r m a t i o n t e c h n o l o g y , a d v e r t i s i n g a n d o t h e r b u s i n e s s r ela ted s e r v ic e s . T h e d e c r e a s e d g r o w t h o f v a l u e a d d e d in c o n s t r u c t i o n s e c t o r in 20 0 3 c a n b e e x p l a i n e d b y s l o w e d e x p a n s i o n o f c o n s t r u c t i o n m a r k e t , b r o u g h t on by r e c e s s i o n in r o a d c o n s t r u c t i o n . E n e r g y s e c t o r g r e w a l s o r e m a r k a b l y d u e to th e d o m e s t i c c o n s u m p t i o n a n d i n c r e a s e o f e x p o r t s 3.
L o w le vel o f in te r e s t rate s, h ig h real w a g e s a n d e m p l o y m e n t g r o w t h in the c o n d i t i o n s o f d e c l i n i n g i n f la tio n a n d in c re a s i n g i n v e s t m e n t s a r e th e m a i n fa c to rs b e h i n d th e r e c e n t e c o n o m i c g r o w t h in E sto n ia . E c o n o m i c g r o w t h o f E s to n ia n e c o n o m y is a l s o s u p p o r t e d b y th e e c o n o m i c d e v e l o p m e n t in th e N o r d i c c o u n tries, th a t w e r e g r o w i n g f a s te r th a n th e E U a v e r a g e d u r i n g r e c e n t y e a r s . F in la n d a n d S w e d e n a r e th e m a i n t r a d i n g p a r tn e r s o f E s to n ia a n d th e m a j o r i t y o f FDI c a m e to E s to n ia f r o m t h e s e c o u n t r i e s . T h u s , th e im p a c t o f th e N o r d i c c o u n t r i e s ’ n e i g h b o u r h o o d o n th e E s t o n i a ’s e c o n o m i c d e v e l o p m e n t is s ig n i fic a n t .
n|a, Slovenia, Cyprus, and 2) the Helsinki group oľ candidate countries (form ed in 1999): Latvia, Lithuania, Bulgaria, Romania, Slovakia and Malia. The enlargement in May 2004 involved ten countries out o f twelve (excluding Bulgaria and Romania).
For additional information about the main components o f economic growth in Estonia see
Convergence Programme [...] 2004, pp. 12-13; Eesti majanduse iilevaade 2003 [...] 2004,
1 4
I ' I E s to n ia —o— E u r o area
Fig. 2.1. Economic growth in Estonia and Euro area in 1996 -2003 (%)
S o u r c e s : Convergence Programme 2004; Statistical O ffice o f Estonia; Eurostat; Bank o f Estonia.
T a b l e 2.1 The main sources and contributions to economic growth in Estonia in 1997-2003 (in %)
Indicators 1997 1998 1999 2000 2001 2002 2003
GDP real growth 9.8 4.6 -0.6 7.3 6.5 6.0 4.7
Sources o f economic growth
Private consumption 7.8 4.3 -2 .9 6.5 4.8 9.1 6.2
General government consumption 1.8 4.5 3.8 1.5 0.9 5.0 5.6
Gross fixed capital formation 17.6 11.3 -14.8 13.3 12.2 16.1 11.5
Change in inventories
(% o f GDP) 2.9 -0.3 -0.4 2.4 2.4 2.9 -1.4
Export o f goods and services 29.5 12.0 0.5 28.6 -0.2 0.6 6.0
Import o f goods and services 29.1 12.9 -5 .4 27.9 2.1 5.4 9.0
Contribution to GDP growth Domestic demand (excl.
Inventories) 9.3 9.2 -5.5 4.9 8.4 9.7 8.0
External balance o f goods
and services -1.7 -1.7 5.1 -0.5 -2 .2 -4.5 -3 .4
Growth o f value added by the main sectors
Agriculture 5.8 0.0 -2 .5 -1 .0 -5 .0 1.4 -3 .5
Industry 10.8 2.1 -3.6 13.9 8.5 8.6 8.4
Construction 15.2 18.3 -8 .2 13.8 4.3 13.9 6.9
Services 8.7 5.3 2.1 5.5 7.2 4.6 3.7
2.2. C u r r e n t a c c o u n t d e f ic it as th e m o s t p r o b l e m a t i c E s t o n i a ’s m a c r o e c o n o m i c i n d i c a t o r T h e h ig h level o f c u r r e n t a c c o u n t d e f ic it is a p r o b l e m a t i c m a c r o e c o n o m i c i n d ic a t o r ; it w a s s ig n i f i c a n t l y h ig h in E s to n ia in 2 0 0 3 : - 1 3 . 7 % . B y th e w a y , this is th e h i g h e s t le vel o v e r t h e p e r io d 1 9 9 7 - 2 0 0 3 ( T a b l e 2.2). T a b l e 2. 2 Main macroeconomic indicators o f the Estonian economy in 1997-2003 (%)
Indicators 1997 1998 1999 2000 2001 2002 2003
GDP (bln EEK) 64.0 73.5 76.3 87.4 97.9 108.0 116.2
GDP deflator 11.3 9.8 4.5 6.7 5.4 4.1 3.0
Consumer price index 11.2 8.2 3.3 4.0 5.8 3.6 1.3
Employment ( 15-74 years, ths.) 617.2 606.5 579.3 572.5 577.7 585.5 594.3
Employment growth -0.3 -1.8 -4.5 -1.2 0.9 1.4 1.5
Productivity growth 10.1 6.5 4.0 8.6 5.5 4.4 3.2
Unemployment rate 9.6 9.9 12.2 13.6 12.6 10.3 10.0
Average wages (EEK) 3571 4100 4418 4876 5511 6144 6709
Wage real growth 7.6 6.0 4.3 6.1 6.9 7.0 8.3
Investments & inventories (%
of GDP) 28.0 29.3 24.5 27.8 28.9 31.4 32.9
„Current account (% o f GDP) -12.1 -9.2 -4 .7 -5 .8 -6 .0 -1 2 .3 -13.7
S o u r c e : Ministry o f Finance o f Estonia, Statistical Office o f Estonia, Bank o f Estonia.
T h e h ig h c u r r e n t a c c o u n t d e f ic it is a l s o in d ic a t e d in th e r e c e n t W o r l d C o m p e t i t i v e n e s s R e p o r t a s o n e o f th e m a j o r w e a k n e s s e s o f th e E s t o n i a n e c o n o m y ( I M D , 2 0 0 3 ) . T h e r e f o r e , th e n a t u r e a n d c a u s e s o f its h ig h le vel a r e a l s o c a r e f u l l y a n a ly z e d by th e E s to n ia n g o v e r n m e n t in stitu tio n s. T h e g r o w t h o f t r a d e b a l a n c e d e fic it is th e m o s t n o t a b l e c o m p o n e n t o f th e c u r r e n t a c c o u n t . R e l a t i v e l y s lo w g r o w t h in e x p o r t o f g o o d s a n d s e r v i c e s in 2 0 0 2 a n d a l s o in 2 0 0 3 ( r e s p e c t i v e l y 0 . 6 % a n d 6 % ) c o m p a r e d to i m p o r t ( re s p e c t i v e l y 5 . 4 % a n d 9 % ; s e e T a b l e 2 .1 ) can b e e x p l a i n e d b y th e p o s t p o n e d r e c o v e r y o f f o re ig n d e m a n d . I m p o r t s in c r e a s e d in 2 0 0 3 , r e g a r d l e s s o f d r o p p i n g g r o w t h o f d o m e s t i c d e m a n d , m o s t l y d u e to th e g r o w t h o f i m p o r t s o f c a p ita l g o o d s , n e c e s s a r y fo r i m p r o v i n g th e c o m p e t i t iv e n e s s o f t h e E s t o n i a n p r o d u c t s in th e w o r l d m a r k e t a n d p r e p a r a t i o n s fo r the F-U a c c e s s i o n . H ig h c u r r e n t a c c o u n t d e f ic it c a n a l s o b e e x p l a i n e d b y l a rg e v o l u m e o f r e - i n v e s t e d r e v e n u e s , g a i n e d f ro m p r o f i t a b l e f o r e ig n i n v e s t m e n t s ( f o r in s ta n ce , th e r e - i n v e s t e d r e v e n u e s m a d e u p 4 . 8 % o f G D P in 2 0 0 3 ) . T h e r o le o f i n v e s t m e n t s in e c o n o m i c d e v e l o p m e n t o f E s t o n i a h a s s i g n i f i c a n tly i n c r e a s e d d u r i n g th e r e c e n t y e a r s , e s t a b l i s h i n g a r o u n d 3 3 % o f th e G D P in 2003 ( T a b l e 2.2). T h e m a j o r i t y o f i n v e s t m e n t s w e r e m a d e in to th e e n e r g y s e c to r,
fol lo w e d b y h o te ls a n d r e s ta u r a n t s a n d t r a n s p o r t ( p a r t i c u l a r l y r a i l w a y tr a n s p o r t ) 4, w a r e h o u s i n g a n d c o m m u n i c a t i o n . R e a s o n s f o r th e c u r r e n t a c c o u n t d c l i c i t m a y n o t re fle c t s ig n i f i c a n t l y th e b a l a n c e d g r o w t h o f th e E s to n ia n e c o n o m y . T h e r e a s o n s o f c u r r e n t a c c o u n t d e t e r i o ratio n c a n b e s u m m a r i z e d as f o llo w s : 1) th e h ig h e c o n o m i c g r o w t h h a s b e e n c a u s e d by the f o re ig n r a th e r t h a n b y th e d o m e s t i c d e m a n d , a n d th e e c o n o m i c c y cle s o f E s to n ia a n d EU h a v e b e e n s lig h tly d if f e r e n t so far; 2) E s t o n i a n e c o n o m y n e e d s b ig in v e s t m e n t s , p a r t i c u l a r l y in v e s t m e n t s in to i n f r a s t r u c t u r e a n d e n e r g y s e c to r; 3) o p t i m i s t i c e x p e c t a t i o n s a n d b ig c a p ita l f l o w s c o n n e c t e d w ith th e EU a c c e s s i o n (s e e a l s o C o n v e r g e n c e P r o g r a m m e , 2 0 0 4 ). T h u s , in t h e c o n d i t i o n s o f r a p id d e v e l o p m e n t o f E s to n ia a s a c o u n t r y w ith sm a ll v e r y o p e n e c o n o m y , c u r rent a c c o u n t d e f ic it m a y b e c o n s i d e r e d a s a s o - c a lle d ‘s u p p l e m e n t g o o d ’ fo r the h ig h e c o n o m i c g r o w t h rate. B y th e w a y , the c u r r e n t a c c o u n t d e f i c i t w a s th e l o w es t in 1999 ( - 4 . 7 % ) w h e n th e e c o n o m i c g r o w t h r a te t u r n e d o u t to b e n e g a t i v e ( - 0 . 6 % ) d u e to th e c o n s e q u e n c e s o f th e R u s s ia n crisis. 2.3. C o n v e r g e n c e p r o g r a m m e a n d j o i n i n g t h e E M U T h e e c o n o m i c r e f o r m s , s ta r t e d a f t e r r e g a i n i n g i n d e p e n d e n c e a n d h a v e p r o g r e s s e d r a p i d l y d u r i n g th e p r e p a r a t i o n s fo r th e E U a c c e s s i o n , a r e c o n t i n u i n g in the c o n d i t i o n s o f th e E s to n ia n full EU m e m b e r s h i p . T h e m a i n g o a l o f th e c u r r e n t r e f o r m p r o c e s s is th e c o n v e r g e n c e to the E U e c o n o m i c d e v e l o p m e n t level. T h e f r a m e w o r k fo r th e r e f o r m p r o c e s s in o r d e r to a c h i e v e th e c o n v e r g e n c e g o a l is set b y th e E s t o n i a n P r e - a c c e s s i o n E c o n o m i c P r o g r a m m e ( P E P , a p p r o v e d b y th e E s t o n i a n g o v e r n m e n t in A u g u s t 2 0 0 3 ) a n d th e C o n v e r g e n c e P r o g r a m m e p r e p a r e d b y the M i n i s tr y o f F i n a n c e in c o l l a b o r a t i o n w i t h the B a n k o f E s t o n i a a n d M i n i s try o f E c o n o m i c A f f a i r s a n d C o m m u n i c a t i o n s in M a y 2 0 0 4 5. A c c o r d i n g to t h e C o n v e r g e n c e P r o g r a m m e , th e p r i m a r y m a c r o e c o n o m i c o b j e c t i v e o f E s t o n i a is to f a c ilita te th e real c o n v e r g e n c e o f n a t i o n a l e c o n o m y b y
4 In 2002 and particularly in 2003, large loan-financed investments were made in the railway transport sector in order to rent the oil wagons mainly to Russian com panies for transportation oil over the territory o f Russian Federation. These investments were financed by the Estonian subsidi aries o f Nordic banks. The extraordinariness o f these transactions can be described by the fact that in 2003, the total imports o f oil wagons increased by more than five times, reaching 4.1 bn EEK (compared with the 0.77 bn in 2002). Those investments are related to few private companies, op erating mainly abroad and thus, they do not reflect general trends in the Estonian economy and do not thereby represent extra burden e.g. on labour resources. The latter investments should start to generate export revenues to cover made investments (see also Eesti majanduse iilevaade 2003...).
5 Information about the forecasts o f the main macroeconomic indicators o f the Estonian Economy for the years 2004-2008 and the general government budget are presented in the an nexes 1-5.
m e a n s o f s u s t a i n a b l e e c o n o m i c g r o w t h s u p p o r t e d b y lo w i n f la tio n a n d s u c c e s s f u l p o lic y m ix . T h e C o n v e r g e n c e P r o g r a m m e s e ts o u t th e c o n d i t i o n s fo r s u s t a i n a b l e g r o w t h in t h e m e d i u m t e r m ( 2 0 0 4 - 2 0 0 8 ) : p r u d e n t fiscal p o l i c y , o p e n a n d f l e x i ble m a r k e t s o p e r a t i n g at full c a p a c i t y , a n d in v e s t m e n t in p h y s i c a l a n d h u m a n c a pita l. T h e p o l i c y m ix i n c l u d e s c o n s e r v a t i v e fiscal p o l i c y w i t h a n e x p l i c i t r u le o f n o m i n a l b u d g e t b a l a n c e , w h i c h is m a k i n g a n e f f o r t in c o m p l y i n g E s to n ia n m o n e t a r y p o l i c y to t h a t o f t h e E M U , in o r d e r to a d a p t t h e e u r o . S u s t a i n a b l e e c o n o m ic g r o w t h a l s o m e a n s s ig n i f i c a n t i n v e s t m e n t in to h u m a n c a p i t a l ( e d u c a t i o n , h e a lth , i m p r o v e m e n t o f d e m o g r a p h i c s it u a ti o n , etc.) a n d i n c l u d e s t h e p o lic y m e a s u r e s a n d th e c o r r e s p o n d i n g s tr u c t u re o f g e n e r a l g o v e r n m e n t b u d g e t that su p p o r t d e v e l o p m e n t o f s o c ia l s e c u r i t y s y s t e m . P a r t i c u l a r a t t e n t i o n s h o u l d be paid to p r o m o t i n g libe ral c o n d i t i o n s o n th e l a b o u r m a r k e t , i n c l u d i n g f r e e m o v e m e n t o f l a b o u r , r e d u c t i o n o f tax b u r d e n , a c tiv e l a b o u r m a r k e t p o l i c i e s a n d c o o r d in a tio n b e t w e e n e d u c a t i o n a n d e m p l o y m e n t p o lic ie s .
S i n c e J u n e 2 0 0 4 , E s t o n i a p a r ti c i p a t e s in E R M II m a i n t a i n i n g t h e p r e s e n t C u r r e n c y B o a r d s y s t e m u n ila te r a lly . T h e e x c h a n g e r a te o f E s t o n i a n
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w ith eu r o h a s b e e n f ixed s in c e 1999 (1 e u r o = 15.647 E E K ) a n d th e E U in s t itu ti o n s h a v e a s s e r t e d t h e c o n f o r m i t y o f c u r r e n c y b o a r d s y s t e m f o r t h e p a r t i c i p a t i o n in ERM-11. B e f o r e th e a d o p t i o n w ith e u r o z o n e , E s to n ia is n o t r e q u i r e d t o a b a n d o n the c u r r e n c y b o a r d s y s t e m a n d th e c u r r e n t f ix e d e x c h a n g e r a t e w i t h th e e u r o . I hus, th e e n t r a n c e in to E R M II d o e s n o t en tail h ig h p o l i c y c o n v e r g e n c e c o s t s f o r E sto n ia . T h e r e a r e n o m e d i u m - t e r m s u s t a i n a b i l i t y is s u e s e m e r g i n g at th e c u r r e n t j u n c t u r e tha t s h o u l d b e a d d r e s s e d th r o u g h th e e x c h a n g e r a te s y s t e m r a t h e r th a n o th e r p o l i c y m e a s u r e s . T h e r e f o r e , th e r e is a lso n o r e a s o n to s u p p o s e th a t t h e c u r re n c y b o a r d a r r a n g e m e n t w o u l d b e c o m e a less a p p r o p r i a t e a r r a n g e m e n t o v e r th e m e d i u m t e r m ( s e e a l s oConvergence Programme
2 0 0 4 , p. 9). A c c o r d i n g to th e E U M a a s t r i c h t T r e a t y rules, E s t o n i a m u s t m e e t th e c o n v e r g e n c e c r i t e r i a r e g a r d i n g th e b u d g e t d e f ic it (n o t e x c e e d i n g 3 % o f G D P ) , s ta te d e b t (not e x c e e d i n g 6 0 % o f G D P ) , in f la tio n a n d in te r e s t ra te s c l o s e to th e r e s p e c t i v e a v e r a g e o f th e th r e e E U c o u n t r i e s ' ( w i th th e lo w e s t in d i c a t o r s i n f la tio n r ate m u s t not e x c e e d o f t h r e e E U m e m b e r s t a t e s ’ lo w e s t i n f la tio n b y m o r e t h a n 1.5 p e r c e n ta g e p o in ts ), in o r d e r to g e t th e final a c c e p t a n c e o f e u r o . T h e m o s t p r o b l e m atic ta sk for E s t o n i a s e e m s to b e k e e p i n g o f lo w i n f la tio n rate. F o r a c h i e v i n g th e c o n v e r g e n c e g o a l , r a p id g r o w t h o f p r o d u c t i v i t y a n d i n c o m e is p r e d i c t a b l e , a n d as a rule th a t a c c o m p a n i e s w i t h a s e r io u s p r e s s u r e on r a p id rise o f p ric e s . E s t o n i a ’s sm a ll o p e n e c o n o m y is v u l n e r a b l e to th e f o re ig n p r i c e le v el, p a r t i c u l a r l y to th e c o m p a r a t i v e l y h i g h p r i c e level o f th e N o r d i c c o u n t ri e s . In th e c o n d i t i o n s o f fre e m o v e m e n t o f la b o u r , E s t o n i a w ill h a v e a s e r i o u s th r e a t tha t p a r t o f w e l l - q u a l i f i e d la b o u r f o r c e m a y le a v e th e c o u n t r y . C o n s e q u e n t l y , th e re w ill b e a s e r i o u s p r e s su r e o n w a g e g r o w t h a n d E s t o n i a c a n n o t a n y l o n g e r b e a c o u n t r y o f lo w l a b o u r c o s ts for th e f o r e ig n i n v e s to r s . It c a n b e e x p e c t e d th a t m a n y f o r e i g n f i r m s w h i c hh a v e b e n e f i t e d f r o m th e a d v a n t a g e o f re la tiv e ly c h e a p E s t o n i a n l a b o u r f o r c e 6 s h o u l d c h a n g e t h e i r b u s i n e s s s tr a t e g y in f o r t h c o m i n g 2 - 3 y e a r s . T h e c o u n t r y s h o u l d d e v e l o p c o n d i t i o n s fo r r a p id in c r e a s e o f p r o d u c t i v i t y a n d s ig n i f i c a n t d e c lin in g o f s tm c tu r a l u n e m p l o y m e n t , in o r d e r to b e c o n t in u o u s ly a t tr a c t iv e for FDI.
2.4. F r o m i n v e s t m e n t s to i n n o v a t i o n b a s e d e c o n o m y a s t h e m a i n ta sk o f t h e E s t o n i a ’s d e v e l o p m e n t
S o far, th e f a c to rs o f th e p r o d u c t i v i t y g r o w t h m a i n l y r e li e d u p o n th e s t r u c tu ral a n d o r g a n i s a t i o n a l a c tiv itie s ; o n l y few i n v e s t m e n t s w e r e m a d e b y th e E s to nian a n d fo re ig n c a p ita l b a s e d e n t e r p r i s e s in to i n n o v a t i v e p r o d u c t i o n a n d q u a l i fied l a b o u r f o rc e. T h e c o n t r i b u t i o n o f p r i v a t e i n v e s t m e n t s into R & D h a s b e e n m a r g i n a l , th e in v e s t m e n t in to R & D h a s m a i n l y b e e n m a d e b y th e E s t o n i a n g o v e r n m e n t , a n d t h e s e a m o u n t s f o r m e d less th a n 1% o f G D P ( 1 . 9 % o f G D P in EU in 2 0 0 0 ; F i g u r e 2.2). In th e f o r t h c o m i n g y e a r s b o th , E s to n ia n a n d f o r e i g n ca p ita l b a s e d e n t e r p r i s e s s h o u l d o b v i o u s l y in v e s t m u c h m o r e in th e R & D a c tiv itie s , e d u c a t i o n a n d r e t r a i n i n g l a b o u r force. 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 цЗ <
Fig. 2.2. Research and Development (R&D) expenditure in E U -15 and accession countries (AC 10) in 2000
S o u r c e : Eurostat; Convergence Programme, 2004.
A c c o r d i n g to th e E s t o n i a n r e s e a r c h a n d d e v e l o p m e n t s t r a t e g y „ E s t o n i a b a s e d o n k n o w l e d g e ” ( a p p r o v e d b y th e E s to n ia n P a r l i a m e n t o n D e c e m b e r 6, 2 0 0 1 ) , E s t o n i a ’s n a t i o n a l ’s a n d g o v e r n m e n t ’s s t r a t e g i c p r io ri ty is r e m a r k a b l e to s u p p o r t ш e UJ us ой 1/1 Q Q ü
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6 The average wages were ca 420 euros in 2003; the growtli o f nominal w ages was around
R & D a n d i n n o v a t i o n a c tiv i tie s in o r d e r to a c h i e v e lo n g - t e r m e c o n o m i c c o m p e t i tiv e n e s s a n d to s h if t d e v e l o p m e n t fro m the i n v e s t m e n t b a s e d , to t h e in n o v a t i o n b a s e d e c o n o m y . In o r d e r to a c h i e v e th is g o a l, it is p l a n n e d to i n c r e a s e to ta l R & D e x p e n d i t u r e to th e 1 .5 % level o f G D P in 2 0 0 6 , w h i c h w o u l d b r i n g E s to n ia c l o s e r to th e a v e r a g e o f E U m e m b e r s . T h e s h if t o f th e E s t o n i a n e c o n o m i c d e v e l o p m e n t f ro m th e i n v e s t m e n t to th e in n o v a tio n b a s e d a n d th e f u lfi lm e n t o f th e c o n v e r g e n c e p r o g r a m m e o r i e n t e d on s u s t a in a b le a n d b a l a n c e d e c o n o m i c g r o w t h a lso s t r e s s e s t h e n e c e s s i t y to i m p r o v e the q u a l i t y o f a n a l y s i s a n d e c o n o m i c d a t a sets. T h e c o m p r e h e n s i v e , in t e r n a t i o n ally c o m p a r a b l e a n d r e li a b le i n f o r m a t i o n is n e c e s s a t y in o r d e r to p r e d i c t th e m a in d e v e l o p m e n t tr e n d s a n d p o s s i b l e s tr u c t u r a l c h a n g e s o f th e e c o n o m y in short, m e d i u m a n d lo n g run p e r s p e c ti v e . G l o b a l i z a t i o n a n d E U e n l a r g e m e n t p r o c e s s e s a r e a c c o m p a n i e d n o t o n l y w i t h th e c h a l l e n g e s for d e v e l o p m e n t o f n e w b u s i n e s s b u t a l s o w i t h t h e i n c r e a s i n g c o m p e t i t i v e n e s s a n d n e w risk s. T h e r e f o r e , p r o f o u n d a r g u m e n t a t i o n a n d f o r e c a s t s a r e u n a v o i d a b l e fo r m a k i n g p r o p e r p u b lic a nd p r i v a t e i n v e s t m e n t s in b o t h p h y s ic a l a n d h u m a n ca p ita l. III. T H E S K E L E T O N O F T H E M U L T I S E C T O R A L E S T O N I A N M O D E L 3.1 T h e I n p u t - o u t p u t t a b le a n d t h e b a s i c d a t a b a s e T h e b a s ic p u r p o s e o f th e m o d e l is t o m a k e l o n g - t e r m p r o j e c t i o n s f o r th e E s to nia n e c o n o m y . M o s t o f th e d a t a u s e d in th e p r e s e n t v e r s io n a r e f r o m th e in p u t- o u tp u t t a b l e m a d e a v a i l a b l e b y th e E s to n ia n S tatistic al O f f i c e fo r t h e y e a r 1 9 9 7 7. T h e d a l a o n final d e m a n d a n d v a l u e a d d e d c o m p o n e n t s a r e n o t y e t a v a i l a b l e in tim e s e r ie s w ith a se c to r a l detail s i m i l a r to th a t o f th e l O ta b le. F u r t h e r m o r e , th e E s to n ia n S ta tis tic a l O f f i c e h a s n o t u s e d the 1 0 ta b l e a s b e n c h m a r k fo r t h e p r o d uct a c c o u n t s . A t p r e s e n t, w e n o t i c e t w o s ig n i f ic a n t d is c r e p a n c i e s : a) d i f f e r e n c e s b e t w e e n the c o l u m n a n d r o w to ta ls o f th e 1 0 ta b le a n d th e f l o w s in t h e n a t i o n a l a c c o u n t s , and b) d i s c r e p a n c i e s in th e p r o d u c t a c c o u n t b e t w e e n r e s o u r c e s a n d in t e r m e d i a t e a nd final c o n s u m p t i o n c o m p o n e n t s . W ith th e a v a i l a b l e d a t a , m o s t l y fro m th e IO ta b le , a s k e l e t o n o f th e E s to n ia n m o d e l h a s b e e n b u i l t w i t h a m i n i m u m o f e q u a tio n s . T h e 1 0 t a b l e d is t i n g u i s h e s d o m e s t i c a n d i m p o r t e d f lo w s; c o n t a i n s 6 final d e m a n d c o m p o n e n t s (p e r s o n a l c o n s u m p t i o n e x p e n d i t u r e , in v e s t m e n t s , in v e n to r y c h a n g e s , e x p o r t s , g o v e r n m e n t e x p e n d i t u r e a n d c o l l e c t i v e c o n s u m p t i o n e x p e n d i t u r e ) , n o v a l u e a d d e d c o m p o nent is a v a i l a b l e a t s e c to r a l level.
M a t r i c e s a n d v e c t o r s s u p p o r t i n g th e E s to n ia n m o d e l a r e c o l l e c t e d in a file (a v a m file d e s c r i b e d in I n te rd y m e * ) w h i c h c o n s t i t u t e th e b a s ic d a t a b a s e . T h e m a tric e s a n d v e c t o r s w h i c h c o m e f ro m the 1 0 t a b le a n d a r e u s e d in th e p r e s e n t v e r s io n o f th e E s to n ia n m o d e l are: a m : i n p u t - o u t p u t c o e f f i c i e n t s m a tr ix m m : im p o r t s h a re s m a tr ix g m : v a l u e a d d e d s h a r e s m a tr ix o u t : s e c to r a l o u t p u t v e c t o r p c e io : p r i v a t e c o n s u m p t i o n e x p e n d i t u r e v e c t o r c c p : p r i v a t e c o l l e c t i v e c o n s u m p t i o n v e c t o r g o v : g o v e r n m e n t c o n s u m p t i o n v e c t o r p d e : in v e s t m e n t b y p r o d u c e r s v e c to r ven : i n v e n t o r y c h a n g e s v e c t o r ex : e x p o r t s v e c t o r im p : im p o r t s v e c t o r t a x p r o d v : net ta x e s o n p r o d u c t s v e c t o r w a g v : c o m p e n s a t i o n o f e m p l o y e e s v e c to r in d ta x v : o t h e r net ta x e s o n p r o d u c t i o n v e c t o r r g e v : o p e r a t i n g s u r p l u s a n d o t h e r i n c o m e v ad : v a l u e a d d e d v e c t o r B e s i d e s t h e s e v e c t o r s a n d m a t r i c e s o b t a i n e d d ire c tly o r th r o u g h v e r y s i m p l e m a n i p u l a t i o n f r o m t h e 1 0 ta b le , t h e r e a r e o t h e r v e c to r s s u c h as: e m p : the e m p l o y m e n t v e c t o r a n d o th e r s w h i c h r e p r e s e n t s e x o g e n o u s ( f o r th e s t a n d i n g a l o n e m o d e l ) v a r ia b le s s u c h as: p im : th e i m p o r t p r ic e s v e c t o r as w e ll a s v e c t o r s g e n e r a t e d d u r i n g th e s o lu t io n o f th e m o d e l: c i m : th e c o s t o f im p o r t e d m a t e r i a l s v e c t o r u n itv a : th e v a l u e a d d e d p e r u n it o f o u t p u t v e c t o r p d m : the d o m e s t i c p r ic e s v e c t o r
p m i x : the d o m e stic co n s u m p tio n prices vector (IO sectoral classification) B r i d g e m a t r i c e s fo r p e r s o n a l c o n s u m p t i o n a n d i n v e s t m e n t a r e n o t y e t a v a i l ab le. C o n s e q u e n t l y , i n v e s t m e n t s by in v e s to r s a n d p e r s o n a l c o n s u m p t i o n c l a s s i fied o n th e s id e o f th e c o n s u m e r a re n o t y e t in tr o d u c e d in th e E s t o n i a n v a m file.
* The following acronym s are from the configuration file o f the Estonian vam file. This file, named vainest.cfg, is reproduced in the Appendix 7. This file drives the construction o f the vam file by using G7.
3.2. E q u a t i o n f o r m u l a t i o n I’lic m o d e l c o n t a i n s e q u a t i o n s for a) im p o r t s h a r e s , a n d b ) v e r y s i m p l e ( l a b o u r) p r o d u c t i v i t y f u n c ti o n s . a) i m p o r t s h a r e e q u a t i o n s W h a t e v e r t h e a n a l y t i c a l s t r u c t u r e o f a se c to r a l im p o r t e q u a t i o n m a y be, total (s e c to r a l) o u t p u t a p p e a r s a m o n g th e e x p l a n a t o r y v a r ia b le s . In fact, to ta l real r e s o u r c e s ( i m p o r t s p l u s o u t p u t ) v a ry to m a t c h th e to tal ( i n t e r m e d i a t e p l u s (Inal) real d e m a n d . A n in c r e a s e ( d e c r e a s e ) o f to tal d e m a n d g e n e r a t e s a n i n c r e a s e ( d e c r e a s e ) in to ta l r e s o u r c e s ; th e n , a n in c r e a s e ( d e c r e a s e ) in d o m e s t i c o u t p u t is e x pe c te d to b e a s s o c i a t e d to a n i n c re a s e ( d e c r e a s e ) o f im p o r ts . In o t h e r w o r d s , total d e m a n d is s a t is f ie d w i t h d o m e s t i c a n d f o re ig n p r o d u c t i o n s ; h o w e v e r , th e s h a r e s o f t h e s e t w o ' r e s o u r c e s ’ m a y vary . Im p o r t s s u b s t i t u t i o n m e a n s th a t i m p o r t s t a k e the p l a c e o f d o m e s t i c p r o d u c t i o n ; im p o r t s e l a s t ic it y ( n o t e q u a l to o n e ) e v o k e s that, as G D P in c r e a s e s , i m p o r t s m a y in c r e a s e ( e la s tic ity g r a t e r th a n o n e ) o r d e c r e a s e ( e la s t i c i t y less th a n o n e ) its w e i g h t o v e r d o m e s t i c r e s o u r c e s . A s f o r a n y e c o n o m i c v a r ia b le , t h e r e m a y b e m a n y a n a l y t i c a l f o r m s s u g g e s te d b y th e p u r e e c o n o m i c t h e o r y , b y t h e e c o n o m e t r i c a s s u m p t i o n s a b o u t the ‘p r o b a b i l i t y g e n e r a t i n g f u n c t i o n ’, a n d b y th e e c o n o m i c w i s d o m . T h e p u r e e c o n o m ic t h e o r y , w h i c h is a s y n o n y m o u s o f n e o c l a s s i c a l t h e o r y , l e a d s to a n a ly ti c a l fo rm s d e d u c e d t h r o u g h a n o p t i m i z a t i o n p r o c e s s a p p l i e d to ra r e ly o b s e r v e d f u n c tio n s ( s u c h a s u tility f u n c ti o n s a n d p r o d u c t i o n f u n c ti o n s ) , b u t w i d e l y a v a i l a b l e from e c o n o m i c te x t b o o k s . T h e e c o n o m e t r i c a s s u m p t i o n s m a y i g n o r e t h e e c o n o m ic t h e o r y in f a v o u r o f a r ic h a n d s o p h is tic a te d d e s c r i p t i o n o f t h e r a n d o m e r ror a t t a c h e d to a n y a n a ly ti c a l f o rm . F o r a g iv e n e c o n o m i c p h e n o m e n o n , th e e c o n o m ic w i s d o m s u g g e s t s a list o f d e t e r m i n a n t s s u p p o r t e d b y e c o n o m i c t h e o r i e s and b y t h e m o d e l b u i l d e r ’s e x p e r ie n c e . A n y h o w , s e c to r a l o u tp u t is e x p e c t e d to b e a l w a y s a m o n g th e e x p l a n a t o r y v a ri ables; th is im p lie s a s i m u l t a n e o u s so lu tio n o f se ctoral im p o r t a n d s e c to ra l total o u t p u t . H o w e v e r , th e c h o i c e o f th e a n a ly tica l form is u p to th e m o d e l b u ild e r.
In th e p r e s e n t c a s e , se c to r a l i m p o r t s h a r e e q u a t i o n s h a v e b e e n i m p l e m e n t e d . T h e im p o r t s h a r e is re la te d to th e to tal r e s o u r c e ( i m p o r t s p lu s to tal o u tp u t) . T h e a na ly tic a l f o r m is v e r y n a i v e ; g i v e n th e s e c to ra l i m p o r t s h a r e at t h e b a s e y e a r , in ip sh o, it v a r ie s f o l l o w i n g a tr e n d . T h e n fo r e a c h s e c to r , th e im p o r t s h a r e e q u a tion h a s th e f o l l o w i n g form :
impsh,
=iinpshg + a * t
w h e r e th e p a r a m e t e ra
m a y b e p o s i t i v e o r n e g a t i v e in t e r p r e t i n g r e s p e c t i v e l y th e c a se o f im p o r t p e n e t r a t i o n o r d o m e s t i c o u t p u t e x p a n s io n .b) L a b o u r p r o d u c t i v i t y e q u a t i o n s
T h e l a b o u r p r o d u c t i v i t y e q u a t i o n s h a v e b e e n e s t i m a t e d f o r a s u b s e t o f 10 s e cto rs. T h e E s t o n i a n S ta tistic a l O f f i c e p u b l i s h e s d a t a o n e m p l o y m e n t a n d d a t a o n in d u s t ria l p r o d u c t i o n in d e x e s . B o th d a t a d o not m a t c h th e 1 0 s e c to r a l c l a s s i f i c a tio n . H o w e v e r , s o m e d a t a m a y b e e a s il y rela ted to th e 1 0 s e c t o r s ; o t h e r d a t a do n o t o f f e r s u f f i c i e n t h in ts to b e r e la te d to w ell d e f i n e d s e c to r s . T i m e s e r ie s o f in d e x e s o f in d u s tria l p r o d u c t i o n , a p p l ie d to th e s e c to r a l o u t p u t fro m th e 1 0 ta b le, h a v e m a d e p o s s i b l e th e p r o d u c t i o n o f tim e s e r ie s o f se c to r a l total o u t p u t at c o n s ta n t p rice s. B o t h e m p l o y m e n t a n d to tal o u t p u t t i m e s e r ie s h a v e b e e n u s e d to e s ti m a t e l a b o u r p r o d u c t i v i t y e q u a t i o n s in th e f r a m e w o r k o f t h e V e r d o o r n ’s law. N o t all th e s e c t o r s h a v e a l a b o u r p r o d u c ti v ity e q u a t i o n s , n e i t h e r c r o s s - o v e r e f fec ts o n p r i c e f o r m a t i o n h a v e b e e n i m p l e m e n t e d . A n y w a y , t h e s e e q u a t i o n s e n l i g h t e n th e i m p a c t o f th e o u t p u t g r o w t h o n th e s e c to ra l l a b o u r r e q u i r e m e n t s o v e r tim e. 3.3. T h e ‘p a s t ’ a n d f u t u r e s c e n a r i o s
T h e E s t o n i a n S ta tistic a l O f f i c e h a s not y e t h a r m o n i z e d th e 1 0 t a b le w ith the n a tio n a l a c c o u n t sta tistics. T h e O f f i c e is in the p r o c e s s to r e v i s e t h e c o n s t r u c t i o n o f th e E s t o n i a n 1 0 t a b l e s a n d th e p r o d u c t i o n o f t im e s e rie s s tr ic tly r e la te d to the 1 0 final d e m a n d a n d v a l u e a d d e d c o m p o n e n t s . M e a n w h i l e , t h e m a c r o v a r i a b l e s o f th e n a t i o n a l a c c o u n t s a re th e o n l y t i m e s e rie s a v a ila b le . T h e y h a v e b e e n u se d to d e s i g n th e ‘p a s t ’ s c e n a rio s . T h e ‘p a s t ’ fills th e t im e s p a n u p to t h e p r e s e n t lim e. O f c o u r s e , it m u s t i n c lu d e th e 1 0 ta b le b a s e y e a r 10. T a b l e 3.2 s h o w s th e m a c r o v a r i a b l e s u s e d to r e c o n s t r u c t t h e ‘p a s t ’ f r o m y e a r 1993 to 2 0 0 3 . T a b l e 3.3 s h o w s th e ra te o f g r o w t h o f th e d a t a o f T a b l e 3.2. T h e m a c r o v a r i a b l e s f ro m T a b l e 3.1 h a v e b e e n u s e d a s i n d e x e s a n d a p p l ie d to t h e c o r r e s p o n d i n g v e c to r s o f th e 1 0 ta ble. T h e r a te o f g r o w t h o f e a c h e l e m e n t o f a v e c t o r a s w e ll a s its to tal s u m is e q u a l to th a t o f th e m a c r o v a r ia b le . T h i s ‘u p d a t i n g ’ h a s not b e e n a p p l ie d to th e in v e n to r y c h a n g e s v e c to r. T h i s v e c t o r c o n t a i n s n e g a t i v e a n d p o s i t i v e flo w s, w h i c h a r e e x p e c t e d to c h a n g e sig n o v e r tim e. It d o e s not m a k e a n y s e n s e to ‘m o v e ’ th e v e c t o r p r e s e r v i n g th e s ig n o f ea c h flow , b e c a u s e th is i m p l y a c o n s t a n t d e c a y o r a c o n s t a n t a c c u m u l a t i o n o f in v e n t o r i e s at s e c to r a l level. T h e se c to r a l i n v e n to r y c h a n g e d e s e r v e s a m o d e l l i n g a p p r o a c h r a t h e r a s i m p l e i n d e x a t i o n " .
1(1 The IO table base year is the year which the tabic refers to. In the present case, the base year is 1997. Notice that the data base spans from 1990 to 2015 (the first active line o f the vam configuration file); it contains the available time series and provides room to project up to year 2015.
F u r t h e r m o r e , t h e ‘s ta tis t ic a l d i s c r e p a n c y ’ is n o t p r e s e n t in th e 1 0 ta b le ; h e n c e , it h a s n o t b e e n u s e d to c o m p l e t e th e r e - c o n s t r u c t i o n o f th e p as t. T h i s m a k e s th e G D P c o m p u t e d f r o m th e n a t io n a l a c c o u n t n o t c o m p a r a b l e w ith the G D P f ro m th e lO ta b le. T a b l e 3.3 s h o w s th e G D P r a te o f g r o w t h w i t h o u t the ‘sta tistic a l d i s c r e p a n c y ’. T h e d i f f e r e n c e b e t w e e n th e G D P r a te s o f g r o w t h is n o tic e a b le ; it s t r e s s e s th e i m p o r t a n c e o f th e rate s o f g r o w t h o f t h e v a r i a b l e in th e p r o d u c t a c c o u n t s in d e t e r m i n i n g th e G D P r ate o f g r o w t h . T h e ‘f u t u r e ’ h a s b e e n d e s i g n e d f o llo w in g th e e c o n o m i c p e r s p e c t i v e s p r e p a re d b y th e M i n i s t r y o f F i n a n c e o f E s to n ia , th e S ta tistic a l O f f i c e o f E s t o n i a a n d the B a n k o f E s to n ia a n d s h o w n in th e S o u r c e o f g r o w t h s e c t i o n o f A p p e n d i x 2 table. T h e f o l l o w i n g T a b l e 3.1 c o n t a i n s th e d a t a u s e d fo r d e s i g n i n g th e ‘f u t u r e ’ s c e n a rio . T a b l e 3.1 The rates o f growth driving the 2004-2010 scenario
2004 2005 2006 2007 2008 2009 2010
Private Consumption 6.2 6.0 6.3 5.4 5.3 5.3 5.3
Government expenditure 6.5 3.9 3.6 3.3 3.1 2.9 2.7
Investments 6.7 9.1 7.8 7.7 7.7 7.7 7.7
Exports o f goods and services 7.4 8.5 9.9 9.3 9.3 9.3 9.3
Imports o f goods and services 7.2 7.9 8.9 8.7 8.5 8.5 8.5
S o u r c e : Own calculations. T h e r a t e s o f g r o w t h f ro m 2 0 0 4 to 2 0 0 8 a r e ta k e n f r o m A p p e n d i x 2; t h e r a te s o f g r o w t h in y e a r s 2 0 0 9 a n d 2 0 1 0 a re a s i m p l e e x t e n s i o n o f t h o s e r e c o r d e d in th e y e a r 2 0 0 8 w ith th e e x c e p t i o n o f the G o v e r n m e n t e x p e n d i t u r e ra te o f g r o w t h . I his h a s b e e n r e d u c e d to t h e le v e ls o f 2.9 a n d 2 .7 r e s p e c t i v e l y f o r th e y e a r s 2 0 0 9 and 2 0 1 0 f o l l o w i n g a tr e n d w h i c h s h o u ld in te r p re t th e t i g h t e n i n g o f th e G o v e r n m e n t e x p e n d i t u r e in th e v i e w to j o i n th e e u r o a r e a o r to b e h a v e a c c o r d i n g to the e u ro a r e a fiscal m o n e t a r y c o n s tr a in ts . T h e s k e l e t o n o f th e E s to n ia n m o d e l a l l o w s u s to sta rt a p r e l i m i n a r y e v a l u a tion o f th e m o d e l p e r f o r m a n c e . All t h e final d e m a n d c o m p o n e n t s a r e a s s u m e d e x o g e n o u s ; e a c h s e c t o r o f a n y hn a l d e m a n d c o m p o n e n t s f o l l o w s th e c o r r e s p o n d i n g total. F i g u r e 3.1 s h o w s in a m u l t i g r a p h b o x th e s c a t t e r o f P e r s o n a l c o n s u m p t i o n e x p e n d i t u r e , I n v e s t m e n t s a nd E x p o r t s . T h e g r a p h s o f th e s e final d e m a n d c o m p o n e n t s a r e th e s a m e in all the se c to rs. In th e p r e s e n t v e r s i o n o f th e m o d e l , b o th im p o r t s a n d o u t p u t a r e e n d o g e n o u s v a ria b le s . S i n c e im p o r t s h a v e p r o c e s s e d a s a n y o t h e r final d e m a n d c o m p o n e n t , th e ir s i m u l a t e d v a l u e s m a y n o w b e c o m p a r e d w ith th e ‘p a s t ’ a n d ‘f u t u r e ’ r e c o n s tru c t e d v a l u e s .
F ig u r e s 3 . 2 - 3 . 7 s h o w the b e h a v i o u r o f th e n a i v e i m p o r t e q u a t i o n s d e s c r i b e d a b o v e , In g e n e r a l , t h e y g e n e r a t e g o o d s i m u l a t i o n s o f th e s e c t o r a l i m p o r t s tim e se rie s. T h e s e f ig u re s s h o w the v a l u e s in th e t i m e in te rv a l 1 9 9 3 - 2 0 1 0 ; up to y e a r 1997, th e m o d e l d o e s n o t c o m p u t e a n y s i m u l a t i o n v a lu e . In th e y e a r s 1998 to 2 0 1 0 , a s s u m i n g th a t t h e s c e n a r i o v a r i a b l e s ( I m p S c e ) b e r e a lly o b s e r v e d , t h e s c a t te r o f th e ir s i m u l a t e d v a l u e s ( I m p S i m ) s h o w th e p o w e r o f t h e m o d e l to m i m i c th e ‘o b s e r v e d ’ e c o n o m y . W e a r i n g a p p a r e l, L e a t h e r a n d l e a t h e r p r o d u c t s , P r o d u c ts o f a g r i c u l t u r e a n d m a c h i n e r y a n d e q u i p m e n t im p o r t s a p p e a r s to b e w e ll p r e d ic te d by th e m o d e l ; w o o d a n d p r o d u c t o f w o o d a n d p u lp , p a p e r a n d p a p e r p r o d ucts im p o r ts a r e r e s p e c t i v e l y o v e r a n d u n d e r p r e d ic te d . F ig u r e s 3 . 8 - 3 . 1 1 c o m p a r e th e i m p o r t s a n d total o u t p u t i n d e x e s ( 1 9 9 7 = 1) at s e c to r a l level. T h e s e fig u re s s h o w th e c o m p o s i t i o n o f th e s e c t o r a l to ta l r e s o u r c e s r e q u i r e m e n t s . All final d e m a n d c o m p o n e n t s a r e a s s u m e d to g r o w ( T a b l e 3 .2 ) a n d c o n s e q u e n t l y total r e s o u r c e s w ill g r o w at th e ir a v e r a g e rate. T h e i r c o m p o s i t i o n is e x p e c t e d to c h a n g e o v e r tim e . B e c a u s e o f th e a s s u m e d s c e n a r i o a n d its i m p l e m e n t a t i o n in th e m o d e l f r a m e w o r k , im p o r t s g r o w f a s te r t h a n o u t p u t in all the s e c to r s . S e c t o r a l p e r f o r m a n c e is i n f l u e n c e d by th e se c to ra l “ o p e n n e s s ” . P u lp , p a p e r a n d p a p e r p r o d u c t s a n d c h e m i c a l s , c h e m i c a l p r o d u c t s s h o w a r e m a r k a b l e in c r e a s e o f im p o r t s a n d a d e c l i n i n g o u tp u t; as r e p o r te d a b o v e , P u lp , p a p e r a n d p a p e r p r o d u c t s s e c t o r h a s a v e r y h ig h i m p o r t s h a r e a n d th e c h e m i c a l s , c h e m i c a l p r o d u c t s s e c t o r b e l o n g s to th e s e ri o u s l y u n s h e lte r e d s e c t o r s w ith a n i m p o r t s h a r e o f 6 9 % . O t h e r m i n i n g p r o d u c t s s e c t o r w ith an im p o r t s h a r e o f 4 7 % m a i n t a i n s a c o n s t a n t o u t p u t level o v e r t i m e w h i l e p r o d u c t o f a g r i c u l t u r e w ith its 2 5 % m a y lig h tly e x p a n d its o u tp u t.
F i g u r e s 3 . 1 2 - 3 . 1 6 s h o w t h e r e l a tio n s h i p b e t w e e n to tal o u t p u t a n d e m p l o y m e n t at s e c t o r a l le vel. O n l y a lim ite d n u m b e r o f s e c t o r s h a v e a l a b o u r p r o d u c t i v ity e q u a t i o n as a b o v e d e s c r i b e d . A t p r e se n t, th e r e is n o e m p l o y m e n t f e e d b a c k w i t h th e rest o f th e m o d e l. H e n c e , o n ly a c u r s o r y a n a l y s i s o f th e e m p l o y m e n t o v e r th e s c e n a r i o h o r i z o n m a y b e g iv e n . L e a t h e r a n d l e a t h e r p r o d u c t s a n d w o o d a n d p r o d u c t s o f w o o d s e c t o r s s h o w a n d in c r e a s i n g o u t p u t a n d a d e c l i n i n g level o f e m p l o y m e n t . C h e m i c a l s , c h e m i c a l p r o d u c t s s e c t o r h a s b o t h o u t p u t a n d e m p l o y m e n t d e c l i n i n g ; th e first t w o s e c t o r s s h o w the e f f e c t o f a l a b o u r p r o d u c t i v i t y e q u a t i o n in t e r p r e t i n g a c l e a r l a b o u r p r o d u c t i v i t y i m p r o v e m e n t o v e r t im e w h i l e th e th ird s e c t o r s h o w an u n c l e a r i n c r e a s e in l a b o u r p r o d u c t i v i t y in p r e s e n c e o f a d e c l i n i n g level o f o u tp u t. T h e m o t o r v e h i c l e s e c t o r s h o w s a s t r o n g u n s a t i s f a c to r y l a b o u r p r o d u c t i v i t y e q u a t i o n ; i f th e total o u t p u t r e m a i n s c o n s t a n t o v e r tim e , it is u n r e a lis ti c to a s s u m e th a t n o l a b o u r p r o d u c ti v ity g a i n is g o i n g to ta k e place. C o n s t r u c t i o n s e c t o r s h o w th e i n te r e s ti n g c a s e o f a g o o d tr e n d in o u t p u t w h i c h is s t r o n g e n o u g h to m a i n t a i n a c o n s t a n t level o f e m p l o y m e n t u n d e r a g o o d i m p r o v e m e n t o f l a b o u r p r o d u c t i v i t y .
Figure 3.1 S o u r c e: Own calculations.
Figure 3.5 S o u r c e : Own calculations.
S o u r c e : Own calculations.
Figure 3.13 S o u r c e : Own calculations.
Gross Domestic Product by Expenditure A pproach at 2000 Constant Prices (m illion kroons)
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Private consum ption
expenditure 35708,7 35927 37715.9 41539,8 45946,3 48338,3 47023,3 51036,5 54057.5 59428,6 62614.9
General government final consum ption
expenditure 15412,3 16031,6 18195,7 17640,4 17411.2 17703,2 18213,5 18406,7 18744,3 19848.4 21002,4
Consumption expenditure o f non
profit institutions 649,7 635,1 673,8 742,6 787,5 818 928 1023.6 1225,2 1536.7 1796
Gross fixed capital
formation 14265,2 15582,6 16452,8 18024,8 21612,4 24642.6 20796,7 23769.4 26856,2 31475,2 33176,7
Change in inventories 1088,5 303,1 428,4 657,4 2141,3 326 146.3 2059,8 2262,9 3473,9 3303
Domestic demand 67124,4 68479,4 73466,6 78605 87898,7 91828.1 87107,8 96296 103146,1 115762,8 121893
Exports o f goods and
services (f.o.b.) 39131,4 40498,8 42663,2 43874,7 56569,9 63336 63777,8 81831,7 81686,7 82185,6 87107,2
..exports o f goods 22877,8 24228,9 25809,9 26170,5 35315 41079,5 40128.8 56345,9 53226.8 55070,3 58445.5
..exports o f services 16253,6 16269,9 16853,3 17704.2 21254,9 22256,5 23649 25485,8 28459,9 2 7 1 1 5 3 28661,7
Imports o f o f goods
and services (f.o.b.) 38088,7 42321 45019,2 48378,3 62543,8 70245,4 66586,3 85400,7 87167 91847,3 100130,7
..imports o f goods 29664.6 33619,9 35999,3 38438,8 51463,8 56690,8 52236,7 69489,5 69685,1 73302 83046,8 ..imports o f services 8424,1 8701,1 9019,9 9939,5 11080 13554,6 14349,6 15911,2 17481,9 18545.3 17083,9 Statistical discrepancy 685,8 1091,1 -2 8 6 .2 -79,7 -113,5 1152,1 1705,4 -9 ,9 979,1 -309,9 2364,1 TOTAL 68852,9 67748,3 70824.4 74021,7 81811,3 86070.8 86004,7 92717,1 98644,9 105791.2 111233,6 O v er v ie w of th e E st o n ia n E co n o m y an d th e P ro gre ss. .
C hange o f G ross Domestic Product Compared with Previous Year by Expenditure Approach at 2000 Constant Prices" (in %)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Private consum ption expenditure 0.6 5.0 10.1 10.6 5.2 -2 .7 8.5 5.9 9.9 5.4
G eneral governm ent final consum ption expenditure 4.0 13.5 -3.1 -1 .3 1.7 2.9 1.1 1.8 5.9 5.8
Consum ption expenditure o f non-profit institutions -2.2 6.1 10.2 6.0 3.9 13.4 10.3 19.7 25.4 16.9
G ross fixed capital formation 9.2 5.6 9.6 19.9 14.0 -1 5 .6 14.3 13.0 17.2 5.4
C hange in inventories -72.2 41.3 53.5 225.7 -84.8 -55.1 1307.9 9.9 53.5 -4.9
Domestic demand 2.0 7.3 7.0 11.8 4.5 -5.1 10.5 7.1 12.2 5.3
Exports o f goods and services (f.o.b.) 3.5 5.3 2.8 28.9 12.0 0.7 28.3 -0 .2 0.6 6.0
exports o f goods 5.9 6.5 1.4 34.9 16.3 -2 .3 40.4 -5 .5 3.5 6.1
exports o f serv ices 0.1 3.6 5.0 20.1 4.7 6.3 7.8 11.7 -4 .7 5.7
Im ports o f o f goods and services (f.o.b.) 11.1 6.4 7.5 29.3 12.3 -5 .2 28.3 2.1 5.4 9.0
imports o f goods 13.3 7.1 6.8 33.9 10.2 -7 .9 33.0 0.3 5.2 13.3
imports o f services 3.3 3.7 10.2 11.5 22.3 5.9 10.9 9.9 6.1 -7 .9
GDP -1 .6 4.5 4.5 10.5 5.2 -0.1 7.8 6.4 7.2 5.1
GDP without Statistical Discrepancy -2 .2 6.7 4.2 10.6 3.7 -0 .7 10.0 5.3 8.6 2.6
Difference 0.6 -2.1 0.3 0.0 1.6 0.7 -2 .2 1.1 -1 .4 2.5
The data for 1993 -2003 have been revised on 18.05 .2004. Due to the accession with the European Union the m ethodology o f macroeconomic statistics changed. The changes concerned the calculation methodology o f imputed rent and consum ption o f fixed capital, and changed also the level o f Gross domestic product and gross national income in the period 1993-2003.
M aur izi o G ra ss in i, T iiu P a a s
T a b l e 3 .4 s h o w s th e r a te s o f g r o w t h o f t h e v a r i a b l e s f r o m T a b l e 3.1 a n d th e G D P ra te o f g r o w t h in a p r o d u c t a c c o u n t w h i c h d o e s n o t in c l u d e i n v e n t o r y c h a n g e s a n d sta tis t ic a l d i s c r e p a n c ie s . T a b l e 3.4 Product account 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Personal Consumption 6.0 5.8 6.1 5.3 5.2 5.2 5.2 Government Expenditure 6.3 3.8 3.5 3.2 3.1 2.9 2.7 Investments 6.5 8.7 7.5 7.4 7.4 7.4 7.4 Imports 7.5 8.6 9.0 8.5 8.5 8.5 8.5 Exports 7.1 8.2 9.4 8.9 8.9 8.9 8.9 GDP 4.3 5.1 5.5 4.9 4.9 4.9 4.9 S o u r c e : Own calculations. I V . C O N C L U S I O N S T h e p a p e r s h o w s th e first s t e p s to w a r d th e c o n s t r u c t i o n o f a m o d e r n in p u t- o u tp u t m o d e l f o r E s to n ia . T h e o b j e c t i v e is a full f le d g e d m a c r o e c o n o m i c m u l tisec tora l m o d e l b a s e d o n th e in p u t o u t p u t t a b le a n d th e in s t itu ti o n a l a c c o u n t s ,
• h e s e c to r a l t i m e s e r i e s o f final d e m a n d a n d v a l u e a d d e d c o m p o n e n t s a n d the tim e s e r ie s o f th e ( n o m i n a l ) f l o w s c o l le c te d in th e in s t itu ti o n a l a c c o u n t s w ill b e la rg e ly u s e d for e c o n o m e t r i c e s t i m a t i o n o f s e c to r a l a n d m a c r o e q u a t i o n s .
T h e p r e s e n t p a p e r s h o w s an i m p l e m e n t a t i o n o f th e real s i d e o f t h e m o d e l with se c to r a l i m p o r t e q u a t i o n s a n d s e c to r a l l a b o u r p r o d u c t i v i t y e q u a t i o n s . T h e u n p o r t e q u a t i o n s a s s u m e tha t the s e c to ra l i m p o r t s h a r e s o n ( s e c t o r a l ) total r e s o u r c e s w ill c o n t i n u e to g r o w in th e n e a r future. T h i s a s s u m p t i o n is s u g g e s t e d by the p a s t e x p e r i e n c e a n d th e e c o n o m i c p e r s p e c t i v e s a s s u m e d b y E s t o n i a n o ffic ia l in stitu tio n s. T i m e s e r i e s o n e m p l o y m e n t m a d e a v a i l a b l e b y th e E s t o n i a n S ta tistic a l O f- f>ce p r e s e n t a d e ta il w h i c h m a t c h e s o n ly a s u b s e t o f i n p u t - o u t p u t s e c to r s . T h e n , la bor p r o d u c t i v i t y e q u a t i o n s h a v e b e e n e s t i m a t e d f o r a g r o u p o f s e c to rs . In the s u n p l e m u lt i s e c t o r a l m o d e l p r e s e n t e d in th is p a p e r , se c to r a l o u t p u t , i m p o r t a n d e m p l o y m e n t a r e e n d o g e n o u s l y d e t e r m i n e d . T h e c o m p a r i n g t h e s e t h r e e v a r i a b l e s at se c to r a l le vel a l o n g a n h o r iz o n w h ic h c o v e r the p a s t ( u p to y e a r 2 0 0 3 ) a n d th e fu tu re ( u p to y e a r 2 0 1 0 ) a l l o w s us to a p p r e c i a t e th e in s i g h t o f f e r e d b y th is m o d e l i n g a p p r o a c h .
R E F E R E N C E S
A l m o n C. , B u c k i e r M. B., H o r w i t z L.. M., R e i n b o 1 d , T. C. (1975), 1985: Interindustry Forecasts o f the American Economy, D. C. H eath and C om pany, Lex ington, M assachusetts, USA
Convergence Programme 2004. Republic o f Estonia. M inistry o f Finance and M inistry o f Econom y and C om m unication, the Bank o f Estonia, M ay 2004
D e d e g k a j e v a I. (2000), Estonian Experience in Compiling Supply and Use Tables, paper presented at the T hirteenth International C onference on Input-O utput T ech niques, 1-25 A ugust 2000, M acerata, Italy
Eesti majanduse 2003. aasta iilevaade. R ahandusm inisteerium . M ajandus- ja K om m uni- katsioonim inisteerium , T allinn, Aprill 2004 (Estonian Econom y in 2003. R eport o f M inistry o f F inance and M inistry o f Econom y and C om m unication, T allinn, April 2004)
E uropean Econom y. European C om m ission Econom ic Papers, P re-A ccession Econom ic Program m e 2003 A ssessm ents, EC, Brussels, 2004
IMD. T he IM D World C om petitiveness Yearbook 2003. Lausanne, Sw itzerland, 2003 w w w .im d.ch/w cv , Nov. 2003)
The H eritage Foundation. 2004 Index o f Econom ic Freedom . M assachusetts, W ashing ton DC, 2004
WEF. The G lobal C om petitiveness Yearbook 2003-2004. World E conom ic Forum , 2003 (w w w .w eforum .org , N ovem ber 2003)
Main data sources:
Eurostat (w w w .euro pa.int/com m /eurostat) M inistry o f Finance o f E stonia (w w w .fin.ee) Statistical O ffice o f Estonia (w w w .stat.ee) T he Bank o f Estonia (w w w .ee/enbe)
APPENDIXES
Appendix 1 Main macroeconomic indicators o f the Estonian economy in 1997 2003 (% )
1997 1998 1999 2000 2001 2002 2003
GDP real growth 9.8 4.6 -0.6 7.3 6.5 6.0 4.7
GDP (bln EEK) 64.0 73.5 76.3 87.4 97.9 108.0 116.2
GDP deflator 11.3 9.8 4.5 6.7 5.4 4.1 3.0
Consumer price index 11.2 8.2 3.3 4.0 5.8 3.6 1.3
Employment (15- 74 years, ths) 617.2 606.5 579.3 572.5 577.7 585.5 594.3
Employment growth -0.3 -1.8 -4.5 -1 .2 0.9 1.4 1.5
Productivity growth 10.1 6.5 4.0 8.6 5.5 4.4 3.2
Unemployment rate 9.6 9.9 12.2 13.6 12.6 10.3 10.0
Average wages (EEK) 3571 4100 4418 4876 5511 6144 6709
Wage real growth Investments and inventories
7.6 6.0 4.3 6.1 6.9 7.0 8.3
(% o f GDP) 28.0 29.3 24.5 27.8 28.9 31.4 32.9
Current account (% o f GDP) -12.1 -9.2 -4.7 -5.8 -6.0 -12.3 -13.7
S o u r c e ; M inistry o f Finance o f Estonia, Statistical Office o f Estonia, Bank o f Estonia. Appendix 2. Main macroeconomic forecasts for the years 2002-2008 (%)
2004 2005 2006 2007 2008
GDP real growth 5.3 5.8 5.6 5.9 5.8
GDP (bln EEK) 126.9 139.2 151.7 165.4 180.1
GDP deflator 3.8 3.6 3.2 3.0 2.9
C onsum er price index 3.1 3.0 2.8 2.8 2.8
Employment (15-74 years, ths) 598.4 602.6 604.1 605.2 606.4
Employment growth 0.9 0.7 0.3 0.2 0.2
Productivity growth 4.3 5.1 5.4 5.7 5.6
Unemploym ent rate 10.0 9.4 9.5 9.4 9.4
Average wages (EEK) 7260 7762 8291 8914 9715
Wage real growth 5.1 3.8 3.9 4.6 6.0
Investments and inventories (% o f GDP1 33.3 33.4 33.9 34.2 34.7
S ou rces o f grow th
Current account (% o f GDP) -13.0 -11.4 -10.8 -9 .6 -8 .7
Private consum ption 6.2 6.0 6.3 5.4 5.3
General governm ent consumption 6.5 3.9 3.6 3.3 3.1
Gross fixed capital formation 6.7 9.1 7.8 7.7 7.7
Change in inventories (% o f GDP) 2.5 1.9 1.6 1.4 1.3
Export o f goods and services 7.4 8.5 9.9 9.3 9.3
Import o f goods and services 7.2 7.9 8.9 8.7 8.5
Contribution to GDP growth
Domestic demand (excl. inventories) 6.5 6.9 7.1 6.8 6.4
Change in inventories -0.3 -0.5 -0 .2 -0.1 0.0
„External balance o f goods and services -0.9 -0.6 -1.2 -0 .8 -0.5
_ G row th o f value added
Agriculture 1.4 1.8 2.6 2.8 2.9
Industry 8.5 8.9 7.5 7.9 7.1
Construction 7.4 6.6 6.8 6.4 6.7
^Services 4.2 4.7 4.9 5.3 5.4
A ppendix 3. Basic assumption o f forecast o f the Estonian economic developm ent for the years 2002 -2008
2002 2003 2004 2005 2006 2007 2008
Short-term interest rate (annual
average) 3.3 2.3 2.2 2.7 3.3 3.7 3.7
Long-term interest rate (annual
average) 4.9 4.1 4.3 4.5 4.6 4.9 4.9
USD/EUR exchange rate
(annual average) 0.95 1.13 1.28 1.22 1.10 1.00 1.00
EEK exchange rate vis-á-vis the
EUR (annual average) 15.647 15.647 15.647 15.647 15.647 15.647 15.647
World GDP growth 3.0 3.5 4.1 4.0 4.0 4.0 4.0
United States. GDP growth 2.5 2.8 3.8 3.3 3.0 3.0 3.0
E U -15 GDP growth 1.1 0.8 2.0 2.4 2.5 2.5 2.5
Oil prices (Brent, USD/barrel) 25.0 28.3 25.5 25.0 25.0 25.0 25.0
S o u r c e : Ministry o f Finance o f Estonia.
Appendix 4 - Comparison o f economic forecasts o f the Estonian economy for the years 2004 and 2005
GDP growth, % Consumer price index, % Current account, % o f GDP 2004 2005 2004 2005 2004 2005
Ministry o f Finance o f Esto
nia 5.3 5.8 3.1 3.0 -13.0 -1 1 .4
European Commission 5.4 5.9 2.8 2.9 -11.5 -9.1
IMF 5.5 5.0 3.0 2.5 -11.0 -7.5
Bank o f Estonia 5.2 5.8 4.0 3.4 -11.1 -9 .2
Estonian Institute o f Eco
6.0 3.5 -1 3 .0
nomic Research
S o u r c e : Ministry o f Finance o f Estonia; European Commission. Economic Forecast. Spring 2004; IMF. World Economic Outlook. Advancing Structural Reforms. April 2004; Bank o f Estonia. Economic Forecast. November 2003; Estonian Institute o f Economic Research, Vol. 1. March 2004.
Appendix 5. Estonian general government revenues compared with other EU Member States 60 50 40 30 20 10 w
<
[Л / / / / / / / / /Ł
h osS o u r c e : Ministry o f Finance o f Estonia, Statistical Office o f Estonia, European Commission.
Appendix 6. General government budget o f Estonia in 2003 and forecasts for 2004- 2008 (% o fG D P )
2003 2004* 2005* 2006* 2007* 2008*
B udget halan cc by sub -sectors
General government 2.6 0.7 0.0 0.0 0.0 0.0
Central government 2.4 0.6 0.1 0.1 0.1 0.1
O f which: pension insurance con
tribution 0.2 -0.3 -0.5 -0.7 -0.7 -0.6
State government - - -
-Local government -0.5 -0.3 -0.2 -0.2 -0.2 -0.2
Social security funds 0.7 0.4 0.1 0.1 0.1 0.1
G en eral govern m ent
Total receipts 41.9 44.0 42.7 41.9 40.3 39.7 Total expenditures 39.3 43.3 42.7 41.9 40.3 39.7 Budget balance 2.6 0.7 0.0 0.0 0.0 0.0 Interest payments 0.3 0.3 0.3 0.3 0.3 0.3 Primary balance 2.9 1.0 0.3 0.3 0.3 0.3 C om p on ents o f revenu es Taxes 23.3 23.7 23.5 22.5 21.8 21.7 Social contributions 12.3 12.0 11.4 11.2 11.1 11.1 Other revenues 6.3 8.2 7.9 8.2 7.4 6.9 Total receipts 41.9 44.0 42.7 41.9 40.3 39.7
C om p on en ts o f ex pen d itu res
Collective consumption 8.8 9.4 9.3 9.0 8.2 8.0
Social benefits in kind 9.8 10.2 10.0 9.9 9.9 9.8
Social transfers other than in kind 13.8 14.6 14.6 14.5 14.4 14.4
Interests 0.3 0.3 0.3 0.3 0.3 0.3
Subsidies 1.2 1.4 1.6 1.6 1.6 1.6
Gross fixed capital formation 4.1 5.0 4.7 4.6 4.2 4.2
Other expenditures 1.3 2.3 2.2 2.0 1.7 1.4
„Total expenditures 39.3 43.3 42.7 41.9 40.3 39.7
