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External Macroeconomic Shocks and the Estonian economy: How did the Russian Financial Crisis affect Estonian Unemployment and Foreign Trade?

Author

Listed:
  • Raul Eamets

    () (University of Tartu)

  • Urmas Varblane

    () (University of Tartu)

  • Kaja Sostra

    () (University of Tartu)

Abstract

In this empirical paper we examine how the Russian financial crisis affected Estonian unemployment and foreign trade. In our interpretation the Russian crisis caused depression in the Estonian economy, but at the same time it also caused a relatively fast reallocation of trade. Eastward export flows (largely foodstuffs) declined drastically while exports to Finland and Sweden largely increased. Several manufacturing firms went into bankruptcy and foreign investors benefited from relatively low stock prices and bought majorities in many Estonian firms. Although the main FDI inflow was connected with the banking sector, we can say that the banking sector was in crisis because of the poor performance of manufacturing (and other sectors). As a result of FDI, labour efficiency increased and labour demand declined. Employment declined in the sectors that were most affected by the Russian crisis, especially fishing, agriculture, manufacturing and construction. Unemployment remained relatively high even as GDP rose, largely because of increased productivity. From our empirical analysis we draw the conclusion that most of the suffering that resulted from declining demand was experienced by less productive blue-collar workers. We also found that low-educated groups are at an increasing risk of unemployment compared with people with a university education. These findings indirectly support our assumption about technological changes. Less qualified, rather than skilled, labour lost their jobs.

Suggested Citation

  • Raul Eamets & Urmas Varblane & Kaja Sostra, 2003. "External Macroeconomic Shocks and the Estonian economy: How did the Russian Financial Crisis affect Estonian Unemployment and Foreign Trade?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 3(2), pages 5-24, July.
  • Handle: RePEc:bic:journl:v:3:y:2003:i:2:p:5-24
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    Citations

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    Cited by:

    1. Klaus Abberger & Biswa Nath Bhattacharyay & Chang Woon Nam & Gernot Nerb & Siegfried Schönherr, 2014. "How Can the Crisis Vulnerability of Emerging Economies Be Reduced?," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 65, October.
    2. Jaan Masso & Almas Heshmati, 2004. "The optimality and overuse of labour in Estonian manufacturing enterprises," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 683-720, December.
    3. Jaan Masso & Priit Vahter, 2008. "Technological innovation and productivity in late-transition Estonia: econometric evidence from innovation surveys," The European Journal of Development Research, Taylor and Francis Journals, vol. 20(2), pages 240-261.
    4. Masso, Jaan & Staehr, Karsten, 2005. "Inflation dynamics and nominal adjustment in the Baltic States," Research in International Business and Finance, Elsevier, vol. 19(2), pages 281-303, June.
    5. Raul Eamets, 2004. "Labour market flows and adjustment to macroeconomic shocks in the Baltic States," Post-Communist Economies, Taylor & Francis Journals, vol. 16(1), pages 47-71.
    6. Jaan Masso & Raul Eamets & Kaia Philips, 2004. "Where Have All The Jobs Gone? Gross Job Flows In Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 28, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Jaan Masso & Raul Eamets & Kaia Philips, 2004. "Job creation and job destruction in Estonia: labour reallocation and structural changes," UCL SSEES Economics and Business working paper series 39, UCL School of Slavonic and East European Studies (SSEES).
    8. Kadri Ukrainski & Raul Eamets, 2004. "Hidden Unemployment and Macroeconomic Shocks in Estonia (1997-2000): Empirical Evidence from Russian Financial Crises," DEGIT Conference Papers c009_036, DEGIT, Dynamics, Economic Growth, and International Trade.
    9. Jaan Masso & K. Espenberg & Anu Masso & I. Mierina & Kaia Philips, 2013. "GINI Country Report: Growing Inequalities and their Impacts in the Baltic States Estonia, Latvia, Lithuania," GINI Country Reports baltics, AIAS, Amsterdam Institute for Advanced Labour Studies.

    More about this item

    Keywords

    Russian crisis; transition economies; labour market; foreign trade;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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