From Bubble to Sustainable Economy in the Baltic States

The Baltic States became independent in the early 90’s, when the iron wall collapsed in the whole Eastern Europe. Thereafter, development in economic terms was rapid and particularly manufacturing and transportation sectors were responsible for prosperity formation. However, after late 90’s situation changed, and boom was apparent in credit led real estate, finance, retail and construction sectors. As these sectors are all domestically oriented, and while the Baltic States in this credit boom period did not experience any trade surpluses, it was evident that credit crunch in 2008-2009 affected economies severely. This research work shows that the Baltic States need to change again weight in Foreign Direct Investment (FDI) for manufacturing and transportation, sectors which have been supported previously only by European Investment Bank and EU Cohesion fund. FDI is vital for the Baltic States, since they have been for long time net receivers of capital, and GDP has greatly been dependent on these inflows. However, future prosperity is only built with export oriented FDI.