During the interwar period, Estonia's early years of independence were marked by significant economic, social, and political reforms. The most important step was the land reform of 1919, which redistributed large estates belonging to the Baltic nobility to farmers and Estonian War of Independence volunteers. Estonia’s economy began to focus on Scandinavia, the United Kingdom, and western Europe, with some exports to the United States and Soviet Union.
However, the Great Depression severely impacted Estonia’s export-driven economy, leading to a 20% decline in industry and a 45% drop in agriculture. This caused incomes to shrink, unemployment to rise, and living standards to fall. As a result, political turmoil increased, and parliament became fragmented, leading to six government changes between 1931 and 1933. The economic crisis fueled dissatisfaction with the parliamentary system and gave rise to the Vaps Movement, an anti-parliamentary nationalist group advocating for a strong presidency.
In October 1933, a referendum passed a new constitution backed by the Vaps Movement, which aimed to reduce parliament's power and create a strong presidency. Before these changes could happen, Konstantin Päts staged a self-coup in March 1934 to prevent the Vaps from gaining control. Päts then began his authoritarian rule, suspending parliament, declaring a state of emergency, and disbanding the Vaps Movement by the end of 1935. For several years, he ruled with full executive power until a new constitution in 1938 restored parliamentary rule.
Despite the political instability, cultural advancements thrived during this time. Estonian language schools were established, and artistic life flourished. A significant achievement was the Cultural Autonomy Act of 1925, which granted rights to minorities, including Jews, setting Estonia apart in Europe.
By the late 1930s, Estonia's attempts to maintain neutrality were overshadowed by the Molotov–Ribbentrop Pact of 1939 between Nazi Germany and the Soviet Union, which placed Estonia within the Soviet "sphere of influence." Estonia, under threat of war, was forced to allow Soviet military bases on its soil in September 1939, marking the end of its brief period of interwar independence.