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Prepared by Ramdane Abdoun, Bartek Augustyniak, M. Astou Diouf, Ruy Lama, Weicheng Lian, and Hongyan Zhao under the guidance of Christoph Klingen. Bartek Augustyniak provided excellent research assistance, and Solange de Moraes Rego and Fernando Morán Arce provided outstanding support.
Re-exports accounted for 30 percent of Lithuania’s exports in 2009 and are predominantly destined for Russia. In the subsequent three years they grew by 137 percent, whereas exports of Lithuanian origin grew at a slower rate of 77 percent (cumulatively and in nominal terms). In Estonia, re-exports account for 12 percent of total exports. Comparable data for Latvia are unavailable.
Exchange rate movements are likely to have flattered world market share gains. The euro has appreciated by about one-third against the US dollar since 2000, thereby boosting the valuation of trade with advanced Europe relative to global trade and thus the market share of countries that trade heavily with advanced Europe, such as the Baltic economies. Consistently, market shares calculated from real exports show only half the gain seen in market shares based on nominal exports.
The quality of the exports in a given product category can be inferred from the prices they command in world markets compared to products in the same category produced in the rest of the world (Fabrizio, Ignan, and Mody, 2006). An index above (below) one indicates above-average (below-average) quality. This approach is suitable to ascertain the quality of a countries’ given export mix—it is silent on whether this export mix is skewed toward or away from high quality products.
A country is said to have revealed comparative advantage (disadvantage) in a product if its exports of this product account for a larger share in its total exports than global exports of this product in total global exports. The classification of goods and service into labor intensive, capital intensive, and knowledge intensive categories follows Rahman and Zhao (2013, p. 40).
The calculations group global exports by product category. The fastest (slowest) growing categories that comprise 50 percent of global exports are considered globally dynamic (non-dynamic). Accordingly, countries that have more (less) than 50 percent of exports concentrated in globally dynamic product categories are considered overexposed (underexposed) to globally dynamic product categories. Natural-resource intensive product categories are excluded from the exercise because of their high susceptibility to global commodity price swings (animals and vegetables, minerals, and fuels).
The degree of GVC participation can be gauged by an index constructed as the sum of (i) the share of imported inputs embedded in exports, and (ii) the share of exports that do not stay in the country of primary destination but rather serve as input into further exports to third countries (Koopman et al., 2014, and OECD, 2012).
Analysis of the Baltic countries’ education systems is beyond the scope of this report, but a review of Latvia points to significant scope for improvement on the educational front (IMF, 2012).