This paper argues, however, that there remain important differences in the way the Baltic countries relate to the European economy. Estonia and Latvia have sold their state-owned enterprises (SOEs) to foreign investors and reoriented their trade rapidly from Russia to the West. Lithuania has sold SOEs to enterprise managers and continues to trade heavily with Russia.
In the existing literature, these differences are explained as a matter of political choices. But what explains these choices? For one thing, Estonia and Latvia have close historical ties to Western Europe as former German and Swedish colonies. After the collapse of Communism, they could resume these ties, especially Estonia, which is also related to Finland by language. By contrast, Lithuania had historically been part of Poland, another poor post-Communist country.
Equally important, the economic structure of the Baltic states differed under—and before—Communism. Estonia and Latvia underwent industrialization in the 1920s and 1930s as German and Nordic capitalists invested in light industries that used local resources. By contrast, Lithuania was an agrarian economy until it was incorporated into the Soviet Union, when it developed a large heavy industry dependent on Russia. This has made it more difficult for Lithuania to reorient its economy from the East to the West.
