1/2025 The first 20 years of Estonia’s independent economy in 1920–1940
This paper discusses the Estonian economy in the first two decades of independence in 1918–1940. This was the time between the two world wars, and the surviving statistics do not cover the whole of it, so it is really only possible to analyse the period starting in 1920, after the War of Independence, until 1939, which was the last year before the Soviet occupation in 1940. This period can be divided into two shorter periods of 1920–1927 and 1928–1939, as this matches the years when two different national currencies were in use, the Estonian mark in the first, and the Estonian kroon in the second. The first of these covers the initial stabilisation of the economy, the introduction of the national currency, the choice of economic policy course, and the first economic boom. The second was a time when the profile of the economy was already more clearly defined, and covers the years after the monetary reform of 1928, the Great Depression and the recovery from the crisis up until the final years of independence.
The paper analyses the creation and development of the independent economy over the two decades, translating the understandings of the day into modern macroeconomic terminology. The result of the analysis is presented as a narrative of economic development that builds on the developments in the main sectors of the economy, financial markets and the labour market, and on the monetary and fiscal policy of the time. The international context of the time is given as background, and covers the main features of the European economy, the evolution of the gold standard, and Estonian economic policy during and after the global crisis. The paper aims to recover the economic logic of that time on a local scale using the national currency. It does not give any comparative analysis of the standard of living based on internationally comparable units of account at purchasing power parity.
The conclusion of the paper is that even though there are substantial limits on the amount of historical statistical data, there are enough available to give a sufficient picture of developments during the first two decades of the Estonian economy. The paper also takes the chance to compare the similarities and differences between the two new restarts that the Estonian economy experienced, as this is a rare historical circumstance, where the economy of an independent state was set up twice within a single century, as happened in 1920s after the First World War, and in the 1990s after the collapse of the Soviet Union. There are several evident parallels that can be seen between the two eras in the first decade after each of the two transitions.
JEL classification: N1, N14
Keywords: Estonia, economic history, Great Depression, gold standard, economic policy
DOI:10.23656/24613800/012025/0227
The views expressed in this Occasional Paper are those of the author and do not necessarily represent the official views of Eesti Pank or the European Central Bank.
