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Development of the Financial Sector Infrastructure in an EU CandidateCountry (The Case of Estonia)

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With contributions by Jill Archer and Clas Wihlborg, Center for Law, Economics and ; In the 1990s, most of the Central and Eastern European countries (CEECs) went throughradical liberalization and adopted large-scale economic and political reform programs. Theseprograms included almost complete price, trade and capital movement liberalization,macroeconomic stabilization, currency reform, and small-scale and large-scale privatization.What is the role of the development of a legal and institutional infrastructure along with theseradical changes in society and the economy? The first part of this paper is based on the resultsof an interview study of entrepreneurs and managers in Estonia undertaken in 1998 and inEstonia, Russia, Finland and Sweden in 2000 in order to obtain their view of the behavior ofgovernment agencies, lawmaking procedures and the operation of law enforcementmechanisms.The second part of this paper presents summary results from interview surveys of Estonianmanufacturing firms undertaken from 1994-2000. The surveys were designed toquantitatively measure the state of and changes in the Estonian business environment,focusing on the key aspects of financial contractual relationships of Estonian manufacturingfirms as well as regulation and dispute resolution mechanisms. Among the observations it isnoted that government regulations do not seriously affect business decisions regarding theoperation, expansion or closing down of Estonian manufacturing firms. A second observationis that the Estonian court system is perceived as inadequate for resolving a substantial numberof disputes and conflicts among economic agents although legislation exists. Most firms relyon mechanisms of self-enforcement when possible.Journal of Economic Literature Classification numbers: K42, K49, G18, G30Keywords: business environment, corporate financial relationships, enterprise restructuring,corruption, law making procedures, law enforcement.

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Vello Vensel

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