We report in the attachment the interesting summary drawn from a study by Guido Michieletto on the Baltic Countries, and in particular on the connection between structural reforms and the ability to attract productive investments from abroad (FDI). Even taking into account the remoteness of these countries and the profound historical and cultural differences, this experience must teach us something, if we want to return to being a pole of attraction for FDI.
The transition process from a centralized economic system to a free market has changed the economic environment of the Baltic countries in the last twenty years, where structural reforms and FDI inflows have mutually fueled and conditioned each other. But, in addition to reforms, the experience of Estonia, Latvia and Lithuania has shown that the same macroeconomic environment, geographical and social conditions, provision of good quality infrastructure, political stability and the fight against corruption play a key role in 'attract foreign capital. Finally, tax incentives contribute as catalysts to implement favorable conditions for investors. It should be emphasized that the timing itself of these structural reforms can effectively affect the success or failure of the same: Estonia's experience in the banking sector shows what the benefits can be in creating such a competitive advantage.
In reality, the attached document shows how progress in reforms, and their success, have not been homogeneous in the three Baltic countries. If, on the one hand, the future of Latvia and Lithuania still depends too much on inflows of foreign capital, on the other hand, although much still needs to be done (particularly with regard to a still very high unemployment rate), it is precisely Estonia that has provided a good example of reforming determination in the last twenty years. In fact, the reforms have not been limited to purely quantitative aspects of growth for their own sake, but have laid the foundations, with a continuous and dynamic effort, of a social environment where qualitatively efficient institutions and rules of the game operate, the benefit of which can be enjoyed by society as a whole.
From this it can be deduced that the fundamental variables, correlated to each other, which affect structural reforms in this sense are precisely the timing, progress in implementing these reforms (first of all liberalisation, competition, infrastructure and macroeconomic stabilisation) and the fight against corruption.
Don't our ears ring a bit?
Attachments: Structural reforms and FDI in the Baltics.pdf
