No. 19




Evaluating the Regional Balance of Estonia’s Economic Development

18 June 2009


RiTo No. 19, 2009

Regional disparities in economic development cause problems for a country as a whole, and thus governments try to reduce the discrepancies by using public sector policy and programmes. The success of such programmes requires an adequate assessment of the differences in regional development.

Regional development strategies have been developed in Estonia, but the execution of the ideas proceeds laboriously. The article provides the traditional evaluation of Estonia’s unbalanced regional development on the basis of distribution of GDP created according to the location of registration of companies. The article also sets out various possibilities for refining the analysis on the basis of a new criterion based on the distribution of creation of value added according to the place of residence of people earning gross wages.

Regional dispersion of economic development is different from one country to the next. Over the last decade, the unbalanced state of regional development has become significantly exacerbated in many European Union member states, above all in the new member states, including Estonia. The situation in Estonia with regard to lack of balanced regional development worsened by one-third from 1996 to 2006. In terms of regional dispersion of economic development, Estonia is second in the European Union, better than only Latvia and also slightly outpacing Hungary.

The article examined the impacts of the gross wages earned per resident and total employment by economic sector on the level of creation of value added (per inhabitant). It became evident that the differences primarily stem from income level, which varies in counties up to 67 % with respect to the Estonian average. The level of creation of value added – evaluated according to the fields of activity in the structure of employment – diverged only 14 % by region.

The assessment as regards lack of regional balance obtained on the basis of the location of GDP created (location where companies and their branches were registered) proved to be more than one-half greater than the regional dispersion obtained on the basis of the place of residence of inhabitants who created value added. The fact that people commute between their homes and jobs thus evens out the share contributed to the country’s GDP by each region – to a greater extent than might have been presumed from the location of companies. The margin of error in the assessment needs to be determined, however, as it stems from the discrepancies between people’s actual place of residence from the region listed in the register.

For the first time, the article based its assessment of regional dispersion and analysis of related factors on data from the Estonian Tax and Customs Board on the level of the remuneration for work paid to residents of rural municipalities and towns and the distribution of wages according to field of activity.

Full article in Estonian