The growth in the market share of Estonian exports indicated an improvement in competitiveness
Economist at Eesti Pank
The latest Competitiveness Report from Eesti Pank describes how the market share of Estonian exports has grown faster in the past couple of years than growth in demand would have predicted. Although 2021 saw later waves of the virus have a powerful impact, it was still a year of recovery from the worst of the pandemic in the global economy. Demand remained strong throughout last year, allowing Estonian producers to increase their sales and profits. Estonia’s foreign trade also increased and the share of Estonian exports was 77% of GDP in 2021.
The shock from Covid-19 was expressed in 2021 in a rapid rise in prices of exports and imports. However the weaker terms of trade in recent years have not favoured the overall competitiveness of exports. The market share of Estonian exports increased despite this as non-price competitiveness improved. This means that Estonia managed to increase its export volumes in the product groups that do not compete purely on price, but where design and product quality matter. This allowed higher prices to be charged as Estonia exported in sectors with greater value-added and higher productivity.
Estonian companies have become more bound into global value chains since the start of the Covid-19 pandemic. This is shown in the emergence of interconnection channels, the large inflow of foreign direct investment, and the growth in trade flows. There were supply-side interruptions and delivery problems in the markets for commodities and inputs last year that disrupted the operating rhythms of global value chains and caused some confusion in international trade. The structure of trade changed in 2020 because of the pandemic by about the same amount that it would in five years under normal circumstances. As the virus spread unevenly, trade with different countries has changed in different ways. Some studies have shown that countries in central and eastern Europe, including Estonia, have received more direct investment as a result of the crisis and have gained in trade.
Some indicators show that Estonia is doing well compared to other countries at introducing climate policies, but it is probable that such policies will in future affect the competitiveness of the Estonian state and of Estonian companies increasingly, mainly through the energy sector. The competitiveness position of countries is affected by the decisions that states make about achieving climate neutrality in their economies. The choice for example of the technologies that will change production processes in the future, the speed at which more sources of renewable energy are introduced, and the future direction of international climate policy given international conflict and sanctions.
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