In the 1990s, most of the Central and Eastern European countries (CEECs) went through
radical liberalization and adopted large-scale economic and political reform programs. These
programs 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 these
radical changes in society and the economy? The first part of this paper is based on the results
of an interview study of entrepreneurs and managers in Estonia undertaken in 1998 and in
Estonia, Russia, Finland and Sweden in 2000 in order to obtain their view of the behavior of
government agencies, lawmaking procedures and the operation of law enforcement
mechanisms.
The second part of this paper presents summary results from interview surveys of Estonian
manufacturing firms undertaken from 1994-2000. The surveys were designed to
quantitatively measure the state of and changes in the Estonian business environment,
focusing on the key aspects of financial contractual relationships of Estonian manufacturing
firms as well as regulation and dispute resolution mechanisms. Among the observations it is
noted that government regulations do not seriously affect business decisions regarding the
operation, expansion or closing down of Estonian manufacturing firms. A second observation
is that the Estonian court system is perceived as inadequate for resolving a substantial number
of disputes and conflicts among economic agents although legislation exists. Most firms rely
on mechanisms of self-enforcement when possible.
Journal of Economic Literature Classification numbers: K42, K49, G18, G30
Keywords: business environment, corporate financial relationships, enterprise restructuring,
corruption, law making procedures, law enforcement
