Estonia Being Caught Up in Russian Turmoil (original publication German only)

Against the backdrop of the Ukraine crisis and Russia’s economic problems, the authors pose the question to what extent the Estonian economy still relies on foreign trade with Russia and which costs Estonia might bear in the course of an aggravation of the lingering East-West conflict. Estonian trade relations with Russia as well as Estonia’s integration in the European and global division of labor are analyzed by a gravity model which also incorporates the foreign trade of the Baltic neighbors Latvia and Lithuania as benchmark countries. The authors find that even before the crisis Estonia’s trade with Russia had lost weight and the dependency on Russian export and import markets had declined. By an in-depth analysis of Estonia’ sectoral trade patterns these findings were confirmed for the majority of industries. Only in the case of the Estonian dairy industry the authors observe significant effects of Russian sanctions. In contrast to this particular case, Estonia becomes increasingly independent from imports of Russian natural gas which in the past made the country vulnerable to political blackmail. The authors conclude that regional and sectoral diversification of Estonian trade patterns induced by the current crisis will help the country to improve its international competitiveness and its economic integration into the world markets.

Kiel Institute Expert