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Economic Growth, Current Account Dynamics and Growth Regimes in the Baltic States

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  • Karsten Staehr

Abstract

This paper considers the growth performance of the Baltic states from the mid-1990s to 2021. Economic growth was fast before the global financial crisis, but slowed markedly after the crisis. Panel data estimations using seemingly unrelated regressions suggest that the dynamics of the current account balance are important for short and medium-term growth in the Baltic states, but that there is a break signifying a change of growth regime around the time of the global financial crisis. Before the crisis, rapid growth was supported by domestic demand that was made possible by large current account deficits. After the crisis, economic growth was supported by external demand reflected in an improvement of the current account. The shift in the economic growth regime after the global financial crisis has brought lower but also more sustainable growth.

Suggested Citation

  • Karsten Staehr, 2023. "Economic Growth, Current Account Dynamics and Growth Regimes in the Baltic States," Bank of Estonia Working Papers wp2023-1, Bank of Estonia, revised 20 Feb 2023.
    • Handle: RePEc:eea:boewps:wp2023-1
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    More about this item

    Keywords

    economic growth; economic convergence; current account balance; global financial crisis;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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