Economy of Estonia

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Estonia is a member of the European Union and a developing market economy.[6]

Before the Second World War Estonia's economy was based on agriculture, but there was a significant knowledge sector (with Tartu known for scientific contributions) and growing industrial sector, similar to Finland. Products such as butter, milk and cheese were widely known on the western European markets. Main markets were Germany and United Kingdom, and only 3% of all commerce was with the neighbouring USSR. The USSR's forcible annexation of Estonia in 1940 and the ensuing Nazi and Soviet destruction during World War II crippled the Estonian economy. Post-war Sovietization of life continued with the integration of Estonia's economy and industry into the USSR's centrally planned structure. Estonia and Finland had about the same GDP per capita before Estonia became a socialist economy. By 1987, the capitalist Finland's GDP per capita was 14,370 USD and the socialist Estonia's GDP per capita was around 2,000 USD.[7]

After Estonia moved away from socialism in the late 1980s and became an independent capitalist economy in 1991, Estonia emerged as a pioneer in global economy. In 1994, Estonia became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. In January 2005 the personal income tax rate was reduced to 24%. A subsequent reduction to 23% followed in January 2006. In 2007 the tax rate was lowered to 22% and in 2008 to 21%. The rate was frozen in 2009. Estonia received more foreign investment per capita in the second half of the 1990s than any other country in Central and Eastern Europe.[7] Estonia has been fast catching up with the EU-15, having grown GDP per capita from 34.8% of the EU-15 average in 1996 to 65% in 2007, similar to Central Europe.[7] Estonia is already rated a high income country by the World Bank. The Estonian economic miracle has been termed a Baltic Tiger.

Estonia is ranked 12th of 162 countries in the Index of Economic Freedom 2008, the best of any ex-communist country. Estonia is on bottom of Europe by labour market freedom, but the government is drafting improvements.[8] Estonia is 24th on the Ease of Doing Business Index 2010 by World Bank Group. The Government of Estonia finalized the design of Estonia's euro coins in late 2004, and is now intending to adopt the euro as the country's currency in 2011, later than planned due to continued high inflation. The Estonian kroon is pegged to the Euro at rate 1 EUR = 15.64664 EEK.


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