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Europe > Latvia, Republic of

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Cover IMF Working Papers
Competitiveness and Productivity in the Baltics: Common Shocks, Different Implications
Saioa Armendariz
,
Carlos de Resende
,
Alice Fan
,
Gianluigi Ferrucci
,
Bingjie Hu
,
Sadhna Naik
, and
Can Ugur
This paper examines competitiveness and productivity in the Baltics. Focusing on recent developments, it asks why Russia’s war in Ukraine led to a prolonged recession and strong decline in competitiveness in Estonia, while Latvia and Lithuania shielded their economies more effectively. The paper starts by documenting a deterioration in export performance across the region. Using a constant share decomposition, it finds that, unlike in Latvia and Lithuania, Estonia’s declining export share has been mainly linked to a reduction in the ‘intensive margin’—a sign of weakening external competitiveness and declining relative productivity. Multivariate filtering techniques and estimates of the real effective exchange rates based on historical productivity trends, consistent with Balassa-Samuelson, confirm that differences in long-term total factor productivity growth have affected external competitiveness. While Estonia’s post-GFC slowdown in productivity growth and real exchange rate appreciation have eroded its competitive edge, Latvia and Lithuania have shown greater resilience, aided by more balanced real effective exchange rates and, for Lithuania, stronger corporate balance sheets. A micro-econometric analysis further reveals that resource misallocation, particularly in the services sector, has been a key driver of declining productivity in the region. These findings underscore the need for targeted reforms to improve allocative efficiency, boost productivity, and restore competitiveness in the Baltic region.
Keywords:
Export shares; Competitiveness; Productivity; Baltics; export share; productivity in the Baltic; resource misallocation; productivity trend; TFP dynamics; TFP deceleration; Total factor productivity; Real effective exchange rates; Real exchange rates; Global
Cover IMF Staff Country Reports
Republic of Latvia: 2010 Article IV Consultation Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Latvia
International Monetary Fund
Policy efforts in Latvia have supported stabilization. Immediate risks are much lower, but medium-term challenges remain. The government should focus on durable spending cuts, but revenue measures may also be required. Efforts to strengthen regulation and supervision to improve financial stability, including reducing reliance on wholesale external funding, is commended. With monetary and fiscal policy constrained by the fixed exchange rate and the need to reduce the deficit, growth depends on structural reform. While economic and financial conditions are much improved, risks remain significant.
Keywords:
ISCR; CR; end-June performance criteria; compromise proposal; proposal; debt; deficit rule; year-on-year inflation; cost saving; strategy paper; Competition; Loans; Fiscal stance; Western Europe; Global
Cover IMF Staff Country Reports
Euro Area Policies: Selected Issues
International Monetary Fund
This Selected Issues paper on Euro Area Policies reviews the integration of Europe’s financial markets and the challenges faced by the new European Union member states with respect to euro adoption. Markets in the Financial Instruments Directive are expected to become applicable in November 2007. The Directive injects new competition among financial intermediaries at all steps of a security’s transaction cycle, from the provision of investment advice to the practical execution and settlement of the transaction, and thus holds the promise to accelerate Europe’s apparently sluggish financial sector productivity growth.
Keywords:
ISCR; CR; market; MiFID; market participant; market intermediary; market activity; market data gathering; market efficiency; market liquidity; London market; Inflation; Competition; Exchange rates; Stock markets; Baltics; Europe; Global
Cover IMF Staff Country Reports
Hungary: Selected Issues
International Monetary Fund
This Selected Issues paper reviews indicators for external competitiveness in Hungary. The paper examines recent developments in a range of indicators. These include regional comparisons of wage and unit labor cost developments, and standard indicators based on price and cost-based measures of the real effective exchange rate (REER). In addition, the paper discusses actual export performance and market shares, profitability indicators, and business survey results. The equilibrium exchange rate is estimated. The paper also analyzes financial sector regulatory governance in Hungary.
Keywords:
ISCR; CR; exchange rate; Hungary; independence; market share; equilibrium exchange rate; export profitability; FSA law; vis-à-vis euro; Board decision; Hungary's REER; unit labor cost; regained competitiveness position; equilibrium REER; Real effective exchange rates; Financial stability assessment; Exchange rates; Competition; Export performance; Global
Cover IMF Staff Country Reports
Latvia: Selected Issues and Statistical Appendix
International Monetary Fund
This Selected Issues paper and Statistical Appendix highlights that the strong economic expansion in Latvia that began in 1996 and accelerated in the following year reversed sharply in mid-1998 as a result of both external and domestic shocks. The initial expansion was fueled by accelerating domestic private and public demand, as well as growing demand for Latvia’s output in both new, mostly European Union, and the traditional Commonwealth of Independent States markets. Domestic consumer and investment demand were supported by growing real incomes and tax revenues and pent-up demand carried over from previous years.
Keywords:
ISCR; CR; Latvia; economy; bank; export; Russia; competitiveness indicator; transition economy; firm adherence; dollar wage; Merchandise export growth; Exports; Commercial banks; Capital adequacy requirements; Real effective exchange rates; Competition; Baltics; Europe; Global
Cover IMF Working Papers
Competitiveness in Transition Economies: What Scope for Real Appreciation?
Ms. Kornelia Krajnyak
and
Mr. Jeromin Zettelmeyer
This paper estimates equilibrium dollar wages for 15 transition economies. Equilibrium dollar wages are interpreted as full employment wages consistent with a country’s physical and human capital endowment, and estimated by regressing actual dollar wages on productivity and human capital proxies in a short (1990-95) panel of 85 countries. The main results are: (i) equilibrium dollar wages have appreciated steadily in the Baltic countries and fast-reforming Central and Eastern European (CEE) transition economies, but have been flat in most CIS countries; and (ii) 1996 actual dollar wages remain below estimated equilibrium dollar wages for most but not all transition countries covered.
Keywords:
WP; dollar wage; exchange rate; transition economy; current account; equilibrium wage; price level; Wages; Real exchange rates; Productivity; Human capital; Competition; Eastern Europe; Baltics; Central and Eastern Europe