Cover IMF Working Papers
Buy Book in Print
Competitiveness and Productivity in the Baltics: Common Shocks, Different Implications
Author:
Saioa Armendariz
Search for other papers by Saioa Armendariz in
Current site
Google Scholar Close
,
Carlos de Resende https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Carlos de Resende in
Current site
Google Scholar Close
,
Alice Fan
Search for other papers by Alice Fan in
Current site
Google Scholar Close
,
Gianluigi Ferrucci
Search for other papers by Gianluigi Ferrucci in
Current site
Google Scholar Close
,
Bingjie Hu
Search for other papers by Bingjie Hu in
Current site
Google Scholar Close
,
Sadhna Naik
Search for other papers by Sadhna Naik in
Current site
Google Scholar Close
, and
Can Ugur
Search for other papers by Can Ugur in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2025: Issue 018
Language:
English
Publication Date:
17 Jan 2025
DOI:
https://doi.org/10.5089/9798400299582.001
ISBN:
9798400299582
ISSN:
1018-5941
Pages:
46
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
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (3 MB) Download Epub
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.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund