Economy of Estonia

The economy of Estonia is rated advanced by the World Bank, i.e. with high quality of life and advanced infrastructure relative to less industrialized nations. Estonia is a member of the European Union and eurozone. The economy is heavily influenced by developments in the Finnish and Swedish economies.

Historically, Estonia's economy was agricultural, moderinising significantly post-independence from Russia in 1918. There was a notable knowledge sector in Tartu and expanding industrial sector, exemplified by the Kreenholm Manufacturing Company. Western European markets were familiar with Estonian dairy, with the main trade partners being Germany and the UK; only 3% of commerce was with the neighbouring USSR. Estonia and Finland had a similar standard of living. USSR's annexation of Estonia in 1940 and destruction during World War II crippled the economy. Post-war Sovietization continued, with the integration of Estonia's economy into the USSR's centrally-planned structure.

After Estonia restored its independence in 1991 and became a market economy, it emerged as a pioneer in the global economy. Estonia styled itself as a bridge between East and West, adopting significant economic reforms and technological innovations. In 1992, the country adopted the Estonian kroon as its currency, this stabilised the economy. In 1994, it became the first country in the world to adopt a flat tax, with a rate of 26% regardless of personal income. Estonia received more foreign investment, per person, in the late 1990s than any other country in Central and Eastern Europe. The country has been catching-up with the EU-15 - the richer European countries. Its GDP per capita grew from 35% of the EU-15 average in 1996 to 65% in 2007, similar to Central European countries. Income per person was $49,000 in 2023 according to the IMF; this was between Poland and Portugal, but below Spain. Because of its economic performance Estonia was termed one of the Baltic Tigers.

For Estonia, the 2007–2008 financial crisis was easier to weather, because its budget has consistently been kept balanced, and this meant public debt relative to GDP remained the lowest in Europe. The economy recovered in 2010. In January 2011, Estonia adopted the euro, and became the first ex-Soviet republic to join the eurozone. Estonia has demonstrated resilience, with a strong service sector, particularly in IT due to the Tiigrihüpe project, and advanced e-government services. Estonia's commitment to a circular economy, innovation and its success in maintaining a balanced budget, low public debt, and a competitive tax system have positioned it as a model of economic reform and growth in post-Soviet Europe.