New Directions in Modern Economics series
Edited by Eckhard Hein, Daniel Detzer and Nina Dodig
Chapter 6: The real sector developments in Estonia: financialisation effects behind the transition process
This study on Estonia examines the long-run changes between the financial and the non-financial sectors of the economy, and in particular the effects of financialisation on key variables / categories of the real economy as well as the their contribution to the financial crisis of 2007/08. The first part provides the background historical overview of the last 20 years in Estonia with some descriptive statistics on GDP, growth contributions of the main demand aggregates, and the financial balances of the macroeconomic sectors since the early 1990s, and it classifies the Estonian development path as following the ‘debt-led consumption’ one. The following chapters examine the effects of financialisation and their extent, accompanied by transition processes, on income distribution, financing of capital stock investments, consumption, and current account dynamics in detail. The final parts deal with the elaboration on the causes of the financial and economic crisis as well as the policy response in Estonia.
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