A C T A U N I V E R S I T A T I S L O D Z I E N S I S ____________ FOLIA O E C O N O M IC A 198, 2006
Maurizio Grassini**, Remigijs Počs**,
Gunta Pinke***, Ludis Neiders****
OVERVIEW OF THE LATVIAN ECONOMY
IN THE CONTEXT OF THE DEVELOPMENT
OF THE MULTISECTORAL MACROECONOMIC
MODEL OF LATVIA
I. I N T R O D U C T I O N A s a n y o t h e r B a ltic S tate , L a t v ia p r o c l a i m e d t h e r e s t o r a t i o n o f i n d e p e n d e n c e in 1991. S in c e m o r e th a n 9 0 % o f t h e B altic S ta te s' e c o n o m y w a s l in k e d to th a t o f the S o v i e t U n i o n , th e f re e d o m w a s a c c o m p a n i e d b y a d e e p s tr u c t u ra l c h a n g e w h ic h b r o u g h t h y p e r - i n f l a t i o n a n d th e b a n k r u p t o f m a n y e n t e r p r i s e s m o s t l y fo c u s s e d o n th e S o v i e t U n i o n ’s m a r k e t ; th e c o n s e q u e n c e w a s a d r a s t i c c o l l a p s e o f p r o d u c ti o n . A l t e r t h e b r e a k d o w n o f the S o v ie t U n io n , L a t v ia lik e o t h e r C e n t r a l a n d E a s t e r E u r o p e a n c o u n t r i e s w h i c h d e c i d e d to j o i n th e E u r o p e a n U n i o n , e x p e r i e n c e d a d e c l i n e o f its G D P up to 1995; a f t e r w a r d s , t h e s e c o u n t r i e s b e c a m e reli a ble c a n d i d a t e s to j o i n the E u r o p e a n U n io n an d b e g a n a c l e a r e c o n o m i c re c o v e r y .The L a tv ia n e c o n o m i c p a c e is still v ig o r o u s an d the c a t c h i n g u p is in p ro g re ss. T h is p a p e r c o n ta in s a first atte m p t to build a m ultise ctoral m o d e l for Latvia. T h e p a p e r is o r g a n iz e d in tw o m a in sections. T h e first o n e d e s c r ib e s the G D P g ro w t h and its secto ral c o m p o s iti o n ; the m o s t signific ant facto rs o f the rec en t L atvian brilliant e c o n o m ic p e r f o r m a n c e su c h as d o m e s tic d e m a n d , e m p l o y m e n t pro d u ctiv ity , the e volution o f the cost o f la bour a r e d es crib ed w ith sp ecial atten tio n o f a p e c u lia r factor as the p e rs p e c tiv e and the full in tegration o f L atvia into the E u r o p e a n U nion. In the s e c o n d se ction a very pre lim in a ry skeleton o f the m u ltise c to ra l m o d e l o f the L atvian e c o n o m y c a n b e found. T h e use o f e le m e n ta ry im p o r t sh a re s e q u a tio n s g ive s the o p p o r tu n ity to stress the im p o r ta n c e o f m e s o e c o n o m ic m o d e l l i n g a p p r o a c h for policy sim ulations.
* University o f Florence, Italy. ** Riga Technical University, Latvia. *** Ministry o f Economics, Latvia. **** Ministry o f Economics, Latvia.
II. G D P G R O W T H T h e L a t v i a n e c o n o m y , t o g e t h e r witli th e rest o f E a s t e r n E u r o p e , e x p e r i e n c e d a s h a r p a n d d e e p r e d u c t i o n in G D P in th e e a r ly s ta g e s o f t r a n s i tio n . B e t w e e n 1989 a n d 1995, t h e c u m u l a t i v e i m p a c t o f th is t r a n s i tio n in L a t v i a is e s t i m a t e d to h a v e h a l v e d th e total a m o u n t o f G D P . T h i s i m p l ie s a s o m e w h a t s t e e p e r d e c l i n e t h a n th a t e x p e r i e n c e d b y o t h e r c u r r e n t l y n e w E U m e m b e r sta te s. T h i s p h a s e o f c o l l a p s e b o t t o m e d o u t in 1995 a n d , in 1996, t h e L a t v ia n e c o n o m y b e g a n to g r o w a g a in (s e e Fig. 2 . 1).
---Latua ... Lithuania --- Estonia — • — EU-15 — Щ— ACC
Fig. 2 .1. Growth o f Real GDP (1995 = 100) S o u r c e : Central Statistical Bureau (CSB) of Latvia.
1997 m a r k e d a r a p id g r o w t h , w h i c h w a s sli g h tly s l o w e d d o w n b y th e i m p a c t o f t h e R u s s i a n 1999 a n d 2 0 0 0 crisis.
L a t v i a ’s g r o w t h o v e r th e last 8 y e a r s w a s th e m o s t d y n a m i c a m o n g th e n e w EU m e m b e r sta te s, a n n u a l l y o n a v e r a g e r e a c h i n g 6 . 1 % . T h e g r o w t h is p a r t i c u larly r a p i d in t h e last 3 y e a r s - b y 7 .3 % . A t th e s a m e tim e , it lias to b e n o t e d th at the g r o w t h s ta r t e d f ro m a v e r y lo w level. In 2 0 0 3 , L a t v ia n p e r c a p i t a G D P , a c c o r d i n g to P P S , a c c o u n t e d for 4 1 . 5 % o f th e a v e r a g e E U - 1 5 le vel. In 1995, it w a s o n l y 2 9 . 1 % . T h e G D P g r o w t h w a s e n s u r e d m o s t l y by th e g r o w t h in p r o d u c t i v i t y a n d to a s m a l l e r e x t e n t b y th e i n c re a s e in e m p l o y m e n t . T h e M i n i s t r y o f E c o n o m i c s h a s d e v e l o p e d tw o m e d i u m - t e r m d e v e l o p m e n t s c e n a r i o s (till 2 0 0 9 ) d e p e n d i n g o n th e v a r i a t i o n s o f th e e x t e r n a l d e m a n d - the s lo w v a r i a n t of d e v e l o p m e n t ( V a r i a n t 1), w ith a lim ite d p o s s i b i l i t y to i n c r e a s e e x p o r ts , a n d th e d y n a m i c v a r i a n t ( V a r i a n t II), w h e n g r o w t h o f e x p o r t s is m o r e d y n a m i c , w h i c h m i g h t h a p p e n in c a s e of a m o r e f a v o u r a b l e e x t e r n a l c o n j u n c t u r e . T a b l e 2.1 p r e s e n t s th e f o re c a s t s for th e d y n a m i c g r o w t h v aria n t.
T a b l e 2.1 GDP growth (percentage change over the previous year, average)
GDP Productivity Employment 1996 2003 6,1 5,7 0,4 1996-2000 5,4 6,1 -0,7 2001-2003 7,3 4,9 2,3 Forecasts 2004 7,5 6,4 1,0 2005 2007 8,0 6,9 1,0 S o n г с с: 1946 -2003 CSB o f Latria. Il is p r o j e c t e d th a t th e i n s o f a r t e n d e n c i e s w ill p e r s is t a l s o in 2 0 0 4 a n d 2 0 0 5 , n a m e l y , th e s t a b l e d o m e s t i c d e m a n d a n d e x p a n s i o n o f e x p o r t s . A d d i t i o n a l in c e n t iv e for g r o w t h m i g h t b e p r o v i d e d b y th e a c c e s s i o n to th e EU. 2.1. S e c t o r a l c o m p o s i t i o n o f G D P In o r d e r to e l a b o r a t e m o r e a c c u r a t e a n d m o r e s u b s t a n t i a t e d n a t io n a l d e v e l o p m e n t f o r e c a s ts , it is n e c e s s a r y to d e s ig n a n d a p p l y a p p r o p r i a t e m o d e l l i n g in s t r u m e n t s , e s p e c i a l l y s u c h t h a t w o u l d e n a b l e to m o r e a d e q u a t e l y f o r e c a s t s t r u c tural ( s e c t o r a l ) c h a n g e s in th e n a t io n a l e c o n o m y . It is a t o p o b j e c t i v e , c o n s i d e r ing t h e fac t th a t o v e r th e r e c e n t 8 y e a r s th e s t r u c t u r e o f t h e L a t v i a n n a t io n a l e c o n o m y h a s e s s e n t i a l l y c h a n g e d ( s e e Fig. 2.2 a n d T a b l e 2.2). T a b l e 2.2 GDP growth by sectors (percentage change over the previous year, average)
1996 2003 1996-2000 2001- 2003 2004' 2005-2007' Primary sectors 2.3 0.8 4.8 3.0 3.8 M anufacturing 6.6 5.0 9.4 10.0 10.5 Utilities 0.3 -2 .0 4.2 2.0 2.2 Construction 9.6 9.3 10.2 15.0 12.7 T rade 10.7 10.3 11.4 10.0 8.4
Transport and comm unications 5.8 4.9 7.3 9.0 8.7
Other services 7.7 8.2 6.8 6.0 8.6
Government* 1.8 1.5 2.3 2.0 2.7
GDP 6.1 5.4 7.4 7.5 8.0
/ - forecasts
1995 2003 T ran e p o rt and co m m u n i c atio n G ovorm «nt* 17% ♦♦♦♦♦♦> • ♦ ♦ ♦ ♦ p' ,mafy ♦ ♦ ♦ \ so clo re * * J T ■ \ 9% O o v e fm e n ľ 10% T ran sp o rt «mi co m m u n i cation 16%
C on stru ctio n utilities
5“* 5%
Utilities 3% C o n stru ctio n
6%
* G overnment sector includes public administration, health and education.
Fig. 2.2. Sectoral composition o f GDI* S o u r c e : CSB o f Latvia.
T h e s h a r e o f th e b r a n c h e s o f s e r v ic e s h a s e s s e n t i a l l y in c r e a s e d , e s p e c ia ll y that o f t r a d i n g s e rv ic e s . A t th e s a m e tim e , the s h a re o f p r i m a r y i n d u s t r i e s a n d m a n u f a c t u r i n g in d u s t r y h a s r e d u c e d . H o w e v e r , it h a s to b e n o t e d th a t o v e r th e last 3 y e a r s th e s h a r e o f m a n u f a c t u r i n g in d u s t r y in th e n a t io n a l e c o n o m y is n o l o n g e r r e d u c i n g , b u t is e v e n sli g h tly in c re a sin g . T h e s t r u c t u r e o f th e b r a n c h e s o f the m a n u f a c t u r i n g in d u s try h a s a l s o u n d e r g o n e s i g n i fi c a n t c h a n g e s ( T a b l e 2.3).
T a b l e 2.3 Structure o f M anufacturing (value added, %)
2000 2003
Total manufacturing* 100 100
Food industry (15, 16) 27,4 24.9
Light industry (17-19) 11,4 9.6
Wood and articles o f wood (20) 19,1 20.4
Paper industry, publishing and printing (21, 22) 8,7 7.6
Chemical industry (23-25) 4,6 4.4
Other non-m etal mineral products (26) 2,9 2.8
Metal and metal products (27, 28) 9,7 9.7
M anufacturing o f machinery and equipm ent (29-35) 10,9 14.6
Other industries (36, 37) 5,4 6.1
♦NACE codes are given in parentheses S o u r c e: CSB o f Latvia.
T h e in d u s t ria l s t r u c t u r e o f L a tv ia is d o m i n a t e d b y s e c t o r s u s i n g c h e a p l a b o u r a n d n a tu ra l r e s o u r c e s o r s e c t o r s w ith a lo w v a l u e a d d e d . T h e v a l u e a d d e d c r e a te d in th e fo o d in d u s t ry , lig h t in d u s t r y a n d w o o d in d u s t r y a c c o u n t s f o r m o r e than a h a l f o f th e to tal in d u s t r ia l v a l u e a d d e d . T h e s a m e r e f e r s to e x p o r t p r o p o r ti o n s . O n e m u s t n o t e th a t th e s it u a ti o n is g r a d u a l l y c h a n g i n g in t h e last y e a r s d u e to the r a p id g r o w t h o f s o m e s e c t o r s in m a n u f a c t u r i n g o f m a c h i n e r y , e s p e c i a l l y in 2 0 0 3 . 2.2. F a c t o r s o f g r o w t h T h e d e s ig n o f m u lt i s e c t o r a l m o d e l is n o t p o s s i b l e w i t h o u t e s t a b l i s h m e n t o f t h e m o s t r e l e v a n t g r o w t h f a c to rs b o th in t h e n a tio n a l e c o n o m y o n th e w h o l e , as w ell as in s e p a r a t e its s e c to r s , a n d th e r e s e a r c h o f th e ir s i m p a c t a n d d y n a m i c s . 2.2.1. D o m e s t i c d e m a n d T h e s t a b l e g r o w t h o v e r th e last y e a r s w a s m o s t l y e n s u r e d b y th e g r o w i n g d o m e s t i c d e m a n d . T h e v o l u m e o f p r iv a t e c o n s u m p t i o n h a s i n c re a s e d . P riv a te c o n s u m p t i o n is f a v o u r a b l y i n f l u e n c e d n o t o n l y b y th e a n n u a l i n c r e a s e o f w a g e s o f th e g a i n f u l l y e m p l o y e d p e o p l e b u t a lso b y th e a b i lity o f p r i v a t e in d i v i d u a l s to b e n e f i t f ro m c o n s u m p t i o n c r e d i t s a n d lo a n s to p u r c h a s e a n d r e p a i r h o u s i n g tha t a r e o f f e r e d at a f f o r d a b l e in te re s t rate s. A l s o th e rate o f i n v e s t m e n t is hig h .
ľ- ] i'v p o ii'. C U D Im p o rts G D P --- D ouicstic dem and Fig. 2.3. Changes in real GDP and m ajor expenditure items
(percentage change over the previous year) S o u r c e : CSB o f Latvia.
T h e i n c r e a s e o f t h e d o m e s t i c d e m a n d h a s left th e m o s t s i z e a b l e i m p a c t o n th e d e v e l o p m e n t o f s e rv ic e s e c t o r s a n d , e s p e c ia ll y , o n retail tr a d e . O t h e r s e c to r s o f s e r v ic e s , s u c h a s c o m m e r c i a l s e r v i c e s a n d fin a n c ia l i n t e r m e d i a t i o n , h a v e also d e v e l o p e d q u i t e d y n a m i c a l l y . A t le ast 2/3 o f th e g r o w t h in t h e s e c t o r o f t r a n s p o r t a n d c o m m u n i c a t i o n s is tr ig g e r e d b y th e d o m e s t i c d e m a n d , w h i c h is s t a b l e a n d g r o w s f a s t e r t h a n th e e x ternal d e m a n d . T h i s e s p e c i a l l y r e f e r s to s u p p o r t i n g a n d a u x i l i a r y ty p e s o f tr a n s port a c tiv ity . A m o n g th e s e , o n e s h o u l d m e n t i o n th e d e v e l o p m e n t o f w a r e h o u s ing, p a r k i n g s e rv ic e s , e x p a n s i o n o f s e r v ic e s o f f e re d by trav e l f irm s a n d o t h e r se rv ic e s . T h e e x t e r n a l d e m a n d o f tra n sit s e r v i c e s is q u i t e c h a n g e a b l e . D u e to th e d i s c r i m i n a t o r y a t ti t u d e o f R u s s ia w ith r e g a r d to tr a n s i t o f oil p r o d u c t s th r o u g h t h e V e n t s p i l s Port, to tal v o l u m e s o f d e l i v e r e d c a r g o in p o r ts h a v e d e c l i n e d ( e s p e cia lly , in th e s e c o n d h a l f o f 2 0 0 2 ). In 2 0 0 3 , th e in d ic a t o rs i m p r o v e d m a i n l y d u e to th e in c r e a s e o f c a r g o t u r n o v e r in o t h e r p o r ts o f L atv ia. H o w e v e r th e V e n t s p i l s P ort is r e c o v e r i n g , s in c e m o r e a n d m o r e c a r g o is tr a n s p o r t e d to th e p o r t b y rail. T h e s ig n i f i c a n t g r o w t h o f i n v e s t m e n t h a s a f a v o u r a b l e i m p a c t o n th e d e v e l o p m e n t o f c o n s t r u c t i o n . G r o w t h r a te s o f th e la tte r a r e s u b s t a n t i a l l y h i g h e r than th e a v e r a g e g r o w t h ra le o f th e n a tio n a l e c o n o m y . It is f o r e c a s t e d tha t p r i v a t e c o n s u m p t i o n a n d G D P w ill i n c r e a s e at t h e s a m e rate. T h i s w ill b e e n s u r e d b y th e g r o w t h o f w a g e s , w h i c h in turn w ill b e e n c o u r a g e d b y th e a n n u a l in c r e a s e o f th e m i n i m u m w a g e . T h e i n s o f a r - f a s t c r e d i t i n g rate s m a y c o n t i n u e g r o w i n g , as th e v o l u m e o f p r i v a t e c r e d its a g a i n s t G D P is still v e r y low. T h e g r o w t h o f d o m e s t i c d e m a n d d ir e c tly i n f lu e n c e s t h e d e v e l o p m e n t o f t h e s e r v i c e s s e c to r; its in f l u e n c e o n th e g r o w t h o f in d u s t r y is s m a lle r . 2 .2 .2 . A c c e s s i o n to th e EU T h e s t r e n g t h e n i n g o f the c o m p e t i t i v e n e s s o f L a t v ia in th e c o n d i t i o n s o f the EU s in g l e m a r k e t , th e a b i lity to u s e s tru c tu ra l f u n d s a n d e x t e r n a l c o n j u n c t u r e will d e t e r m i n e t h e s p e e d o f g r o w t h in th e p e r io d till 2 0 0 7 . T h e a c c e s s i o n to th e E U p r o v i d e s n e w in c e n ti v e s lin k e d w ith ; i n te g r a tio n in to th e E U s in g l e m a r k e t, w h i c h w ill p r o v i d e L a t v ia t h e o p p o r t u n i t y to b e n e f i t f ro m th e a d v a n t a g e s o f a w i d e a n d s t a b l e m a r k e t . It w ill r a is e i n te r e s t o f lo cal a n d f o re ig n in v e s to r s in th e e c o n o m y o f L atv ia;
g r o w i n g o f c o m p e t i t i o n , w h i c h will h a v e a d i f f e r e n t i m p a c t o n d if f e r e n t e c o n o m i c s e c to r s . S o m e s e c to r s w ill g a i n f r o m th e e x p a n s i o n o f th e i r m a r k e t s a n d s o m e s e c t o r s w ill lose. T h e p r e s s u r e o f th e c o m p e t i t i o n w ill b e c o m e n o ti c e a b ly s t r o n g e r in th e d o m e s t i c m a r k e t w ith s m a l l e r c h a n g e s in th e e x t e rn a l m a rk e t. H o w e v e r , t h e re is n o d o u b t tha t c o m p e t i t i o n w ill fa c ilita te m o d e r n i s a tio n, r e s t r u c t u r i n g a n d a lso s p e c ia lis a tio n , w h i c h in tu rn , w ill a c c e l e r a t c th e c h a n g e o f th e s tr u c t u r e o f th e L a t v ia n n a tio n a l e c o n o m y ;
- i m p r o v e m e n t o f c o m p e t i t i v e n e s s in r e la tio n s w i t h th e th ir d c o u n t r i e s sin c e L a t v i a w ill p a r t i c i p a t e in i n te r n a tio n a l t r a d e w i t h i n t h e s c o p e o f t h e c o m m o n E U f o r e ig n t r a d e p o lic y ;
p o s s i b i l i t y to g e t a c c e s s to s u b s t a n tia l r e s o u r c e s f r o m th e E U g i v e n to L a t v ia a s a n E U m e m b e r sta te , w h i c h will s t i m u l a t e s tr u c t u ra l a d j u s t m e n t s u p o n i n t e g r a tio n into th e s i n g l e m a r k e t a l l o w i n g to in t e n s i v e l y m o d e r n i s e a n d e x p a n d i n f r a s t r u c t u r e a n d e n c o u r a g e b u s i n e s s a c tiv ity in all r e g i o n s o f L a t v ia ;
r e d u c t i o n o f fin a n c ia l r i s k s p r o v i d i n g a c c e s s to c h e a p e r lo a n s fo r L a t v ia n u n d e r t a k i n g s . 2 .2 .3 . E m p l o y m e n t a n d p r o d u c t i v i t y A s a l r e a d y m e n t i o n e d a b o v e , t h e total n u m b e r o f e m p l o y e d p e r s o n s h a s s li g h tly g r o w n , o v e r th e p e r io d o f 8 y e a r s by 3 ,3 % . D u e to th e R u s s i a n c r is i s th e n u m b e r o f e m p l o y e d r e d u c e d , b u t s ta rte d to g r o w w ith th e ra p id e c o n o m i c g r o w t h in 2 0 0 1 - 2 0 0 3 . A t th e s a m e tim e , s u b s t a n tia l i m p r o v e m e n t in th e u n e m p l o y m e n t r ate i n d i c a t o r s is d u e to th e r e d u c t i o n o f th e n u m b e r o f e c o n o m i c a l l y a c tiv e p o p u l a t i o n . H Z 3 U h errp lo y m en l r a t e L , i R e g is te r e d u n e rrp lo y m e n t r a t e ---N um b er of em p lo y ed
Fig. 2.4 Employment and unemployment S o u r c e : CSB o f Latvia. T h e n u m b e r o f t h e r e g is t e r e d u n e m p l o y e d p e r s o n s is s m a l l e r th a n th e to tal n u m b e r o f th e u n e m p l o y e d ( a p p r o x i m a t e l y by 2 0 % ) . T h e r e a r e s e v e r a l r e a s o n s fo r th is. N o t all c a n g e t u n e m p l o y m e n t b e n e f it s in c e s o c ia l i n s u r a n c e c o n t r i b u t i o n s h a v e n o t b e e n p a i d ( d e c la r e d ) ; m a n y a r e n o t in te r e s te d o r n o t a b l e to m a s t e r r e tr a i n in g p r o g r a m s , e s p e c ia ll y , in a p r e - p e n s i o n a g e ; o f te n it is q u i t e b u r d e n s o m e to f o llo w all t h e p r o v i s i o n s to g e t the s ta tu s o f a r e g i s t e r e d u n e m p l o y e d . B e s id e s , t h e s t a tu s o f an u n e m p l o y e d is n o t a w a r d e d to p e r s o n s th a t a r e o u t s i d e th e l a b o u r a g e d e f i n e d in le g is la tio n .
A s a l r e a d y m e n t i o n e d a b o v e , th e m a i n s o u r c e o f g r o w t h is th e g r o w t h in p r o d u c ti v ity . P r o d u c t i v i t y g r o w t h h a s b e e n in a l m o s t all b r a n c h e s o f n a tio n a l e c o n o m y , e x c e p t in s u c h a m o n o p o l y in d u s t r y a s utilities.
T a b l e 2.4 Productivity (GDP per worker) growth rates (percentage change over the previous
year average in the period)
Specification 1996-2003 1996-2000 2001-2003 Primary sectors 4.9 5.4 4.0 Manufacturing 8.8 8.2 9.9 Utilities -1 .2 -4.0 3.8 Construction 3.3 6.5 -1.8 Trade 7.6 7.0 8.6
Transport and communications 3.7 6.8 -1.3
Other services 4.7 6.0 2.6 Government* 2.7 2.2 3.5 GDP 5.7 6.1 4.9 S o u r c e : CSB o f Latvia. The p r o d u c t i v i t y g r o w t h r ate in th e r e c e n t y e a r s is s l o w i n g d o w n , h o w e v e r th e i n d ic a t o r s m a y n o t b e tr e a te d u n e q u i v o c a l l y , s in c e t h e n u m b e r o f e m p l o y e d ta k e n for d e t e r m i n i n g p r o d u c t i v i t y d o e s n o t a l w a y s a d e q u a t e l y r e f le c t th e ac tu a l s itu a ti o n , w h i c h is c o n n e c t e d w ith th e r e la tiv e ly h ig h s h a r e o f th e s h a d o w e c o n o m y in s u c h s e c t o r s a s b u i l d i n g c o n s t r u c t i o n a n d t r a d i n g s e r v ic e s . A s e v e r y y e a r th e s h a d o w e c o n o m y in th e s e i n d u s t r i e s is r e d u c in g , th e n t h e a c t u a l g r o w t h o f p r o d u c t i v i t y is h i g h e r , a n d , e.g., o v e r the r e c e n t th r e e y e a r s p r o d u c t i v i t y in c o n s tr u c t i o n h a s m o s t lik e ly g r o w n r a t h e r t h a n fallen.
D e s p i t e th e fac t tha t p r o d u c t i v i t y h a s m o s t r a p id l y g r o w n in m a n u f a c t u r i n g , its level is still la g g i n g b e h i n d th e in d ic a t o r s o f se v e r a l s e r v i c e s e c t o r s ( F ig . 2.5).
P re s e n tl y t h e M i n i s tr y o f E c o n o m i c s d o e s n o t e l a b o r a t e p r o d u c t i v i t y f o r e c a s ts b y s e c to r s , w e lo o k f o rw a r d to c o o p e r a t i o n in th is are a.
Primary sectors ---Construction
Trade Transport and Communications
Other services
Fig. 2.5. Productivity by sectors relative to manufacturing (100) S o u r с e: CSB o f Latvia.
2.2 .4 . W a g e s u n d u n it l a b o u r c o s ts
O n th e w h o l e , p r o d u c t i v i t y o f n a tio n a l e c o n o m y is g r o w i n g m u c h m o r e r a p id ly th a n l a b o u r c o s ts , o n a v e r a g e b y 2.7 p e r c e n t a g e p o in ts . A t th e s a m e t im e , p r o d u c t i v i t y g r o w t h in m a n u f a c t u r i n g a p p e a r s m o r e d y n a m i c , w h i c h r e s u lt s in th e r e d u c t i o n in a n n u a l u n it l a b o u r costs.
All economy I Manufacturing
Fig. 2.6. Unil labour costs (percentage change over the previous year) S o u r c e : CSB o f Latria.
T a b l e 2.5 W ages and costs (percentage change over the previous year, average)
1996-2003 1996-2000 2001 -2003 2004 2005-2007
All economy Wages
Productivity Unit labour costs
8.7 5.7 2.9 9.2 6.1 2.9 7.9 4.9 2.9 10.0 6.4 3.3 7.5 6.9 0.5 Manufacturing Wages 6.8 7.3 5.9 Productivity 8.8 8.2 9.8 -
-Unit labour costs 1.9 -0 .8 -3.6 -
-Source: CSB o f Latvia.
T h e tr e n d o v e r th e r e c e n t y e a r s s h o w s th a t w a g e i n c r e a s e in th e f u tu r e w ill be f a s te r a n d , a s a r e s u lt, u n it l a b o u r c o s ts w ill in c re a se .
2.2.5. I n v e s t m e n t s
L a tv ia is c h a r a c t e r i s e d b y a r e la tiv e ly h ig h s h a r e o f fixed i n v e s t m e n t in utili z a tio n o f G D P . It h a s in c re a s e d f ro m 1 3.8% in 1995 to 2 4 , 2 % in 2 0 0 3 . A s th e r e is n o d ir e c t a c c e s s to L a t v ia n s ta tistic s o n d i s t r i b u t i o n o f in v e s t m e n t s b y s e c to r s , p r e s e n t l y , th e i n f o r m a ti o n p r e p a r e d f o r t h e a n a l y s i s c o v e r s o n ly th e r e c e n t t h r e e y ea rs. D u r i n g 2 0 0 1 - 2 0 0 3 , i n v e s t m e n t s in to th e s e c to r s o f L a t v ia n e c o n o m y g r e w b y 2 8 . 6 % o r on a v e r a g e b y 8 . 7 % a n n u a lly . It s h o u l d b e n o t e d th a t o v e r th e p ast t h r e e y e a r s th e i n v e s t m e n t d y n a m i c s h a s b e e n faste r in p r o d u c t i o n s e c t o r s d u e to t h e g r o w t h o f g e n e r a l e c o n o m i c a c tiv i tie s , i m p r o v e m e n t o f c r e d i t i n g t e r m s a n d in v e s t m e n t f rie n d ly e c o n o m i c p o lic y . O v e r th e p a s t t h r e e y e a r s i n v e s t m e n t s into th e p r o d u c t i o n s e c t o r s w e n t up b y 3 7 . 5 % (o r o n a v e r a g e b y 1 1.2 % a n n u a l l y ) , w h e r e a s i n v e s t m e n t s in to the s e r v i c e s e c t o r g r e w b y 2 5 . 2 % ( o n a v e r a g e by 7 . 8 % a n n u a lly ) . O v e r th e p e r i o d m e n t i o n e d th e faste st in v e s t m e n t g r o w t h w a s r e c o r d e d in p r i m a r y s e cto rs. I n v e s t m e n t into m i n i n g in d u s t r y a n d a g r i c u l t u r e in 2 0 0 3 d o u b l e d in c o m p a r i s o n w ith 2 0 0 2 . M e a n w h i l e , a d e c r e a s e in in v e s t m e n t w a s fix e d in s u c h s e c t o r s a s e d u c a t i o n , h e a lth c a re, t r a n s p o r t a n d c o m m u n i c a tio ns. T a b l e 2.6 Investment by sectors (excluding investment in individual construction, percentage)
Growth rates Average in 2001- 2003
2001 2002 2003 Growth rates Structure
Primary sectors -12.1 90.8 2.8 19.9 3.0
Manufacturing 21.8 15.5 4.0 13.5 16.2
Electricity, gas and w ater supply 16.8 4.3 -9 .0 3.5 8.1
Construction -0 .9 10.9 27.0 11.7 2.9
Trade 7.4 4.1 32.8 14.1 17.6
1 ransport and communications 7.8 12.4 -18.0 -0.3 21.5
17.3
Other commercial services 20.7 1.2 13.0 11.3
Public services -6.7 30.1 15.1 7.6 13.4
Total 8.1 12.4 5.9 8.7 100.0
S o u r c e : CSB o f Latvia.
In th e y e a r s to c o m e i n v e s t m e n t g r o w t h w ill a l s o b e o n e o f th e m o s t s ta b le ite m s o f d o m e s t i c d e m a n d .
2.2.6. P ric e b e h a v i o u r a n d in fla tio n C o n s u m e r p r i c e in f la tio n in L a t v ia ( s e e F i g u r e 2 .7 ) in th e r e c e n t y e a r s w a s c l o s e to th e le vel o f in f la tio n in th e d e v e l o p e d c o u n t r i e s a n d a m o n g t h e l o w e s t in C e n tr a l a n d E a s t e r n E u ro p e . 7.0 6.2 3.2 3.2 3.6 2.8 1.8 5,0 4,5 3,0 1997 1998 1999 2000 2001 2002 2003 2 0 0 4 f 2 0 0 5 f 2006Г 20071'
Fig. 2.7. Consum er price changes (12-month inflation, percent) S o u r c e : 1996-2003 CSB o f Latvia.
In th e s e c o n d h a l f o f 2 0 0 3 a n d at th e b e g i n n i n g o f th is y e a r , th e in f la tio n rate h a s r o c k e t e d in L a tv ia . A t th e e n d o f 2 0 0 3 , th e in fla tio n r a te r e a c h e d 3 . 6 % ( 1 2 - m o n t h in fla tio n , D e c e m b e r o v e r D e c e m b e r ) , w h i c h w a s t h e h i g h e s t level in the last six y e a r s.
T h e r a p id g r o w t h o f in f la tio n w a s d u e to th e c o i n c i d e n c e o f s e v e r a l f a c to rs h a v i n g a n i m p a c t o n th e rise o f prices:
- th e ris e o f th e e u r o e x c h a n g e r ate ( e s p e c ia lly in 2 0 0 3 ) , w h i c h m a d e im p o r t m o r e e x p e n s i v e ; - th e c o n t i n u o u s l y h ig h a n d g r o w i n g d o m e s t i c d e m a n d , w h i c h , in tu r n , w a s f u e lle d b y th e r a p id u p s u r g e o f w a g e s a n d c re d itin g ; - t h e e x p e c t a t i o n s o f in f la tio n tr ig g e re d b y p s y c h o l o g i c a l r e a s o n s a n d s p e c u la tio n s a b o u t th e e x p e c t e d h u g e p r ic e rise w h e n L a tv ia j o i n e d t h e E U ; - th e g r o w t h o f a d m i n i s t r a t i v e l y r e g u l a t e d p ric e s . In 2 0 0 3 a n d at th e b e g i n n in g o f 2 0 0 4 , a d m i n i s t r a t i v e l y r e g u l a t e d p r ic e s g r e w m o r e r a p i d l y th a n in the p r e c e d i n g p e r io d s ; - t h e w o r l d w i d e rise o f fuel p r i c e s w h i c h m o s t l y a f f e c t e d th e in c r e a s e o f p r ic e s in A p ril a n d M a y 2 0 0 4 .
III. T H E S K E L E T O N O F T H E L A T V I A N M U L T I S E C T O R A L M O D E L
3.1 T h e I n p u t - o u t p u t t a b le a n d th e b a sic d a t a b a s e
T h e b a s ic p u r p o s e o f th e m o d e l is to m a k e l o n g - t e r m p r o j e c t i o n s for th e L a t v ia n e c o n o m y . T h e d a t a u se d in th e p r e s e n t v e r s i o n a r e m o s t l y f ro m th e in p u t- o u t p u t ta b le m a d e a v a i l a b l e b y th e L a t v ia n S tatistic a l O f f i c e f o r th e y e a r 1997. I n d e e d , s in c e 1997 the S tatistic al O f f i c e b e g a n to p u b lis h i n p u t - o u t p u t t a b le s on a n n u a l b a s is ; r e c e n tly , th e S tatistic a l O f f i c e a n n o u n c e d tha t t h e i n p u t - o u t p u t t a b le for th e y e a r 2 0 0 0 w ill b e p r o d u c e d w ith n e w cr ite r ia c a n c e l l i n g , at th e s a m e tim e , th is ta b le f ro m th e c a ta lo g u e . N o w , a c c o r d i n g to th e last E u r o s t a t d i r e c tives, the I n p u t - o u t p u t ta b le s o f th e E u r o p e a n U n io n M e m b e r S ta t e s w ill b e d i s trib u te d fre e o f c h a r g e s in c e n e x t a u t u m n . O f c o u r s e , L a t v i a n i n p u t - o u t p u t ta b le will b e a v a i l a b l e a s a n y o t h e r in p u t- o u t p u t ta b le ; a n y w a y , a d i r e c t link w ith the L a t v ia n S ta tistic a l O f f i c e will m a k e e a s i e r the c o l l e c t i o n o f t i m e s e r ie s d a ta for the i m p l e m e n t a t i o n o f th e m o d e l.
A t p r e s e n t, d a ta o n final d e m a n d a n d v a l u e a d d e d c o m p o n e n t s a r e n o t yet a v a i l a b l e in t i m e s e r ie s w ith a se c to ra l de ta il s i m i l a r to th a t o f th e 1 0 ta ble. W ith the a v a i l a b l e d a ta , m o s t ly f ro m t h e 1 0 ta b le, a s k e l e t o n o f th e L a t v i a n m o d e l h a s b e e n bu ilt w ith a m i n i m u m o f e q u a tio n s . T h e 1 0 t a b le d i s t i n g u i s h e s d o m e s t i c a n d im p o r te d f lo w s; c o n t a i n s 6 final d e m a n d c o m p o n e n t s ( p e r s o n a l c o n s u m p t i o n e x p e n d i t u r e , i n v e s t m e n t s , in v e n to r y c h a n g e s , e x p o r ts , g o v e r n m e n t e x p e n d i t u r e a n d c o l l e c t i v e c o n s u m p t i o n e x p e n d i t u r e ) ; n o v a l u e a d d e d c o m p o n e n t is a v a i l a b l e at s e c to r a l le vel. M a t r i c e s a n d v e c t o r s s u p p o r t i n g th e L a tv ia n m o d e l a r e c o l l e c t e d in a file ( a v a m file d e s c r i b e d in I n t e r d y m e 1) w h i c h c o n s t i t u t e th e b a s ic d a t a b a s e . T h e m a tric e s a n d v e c t o r s w h i c h c o m e f r o m th e 1 0 ta b le a n d a r e u se d in th e p r e s e n t v e r s io n o f th e E s to n ia n m o d e l are: a m : th e i n p u t - o u t p u t c o e f f ic ie n ts m a tr ix m m : th e im p o r t s h a r e s m a trix g m : th e v a l u e a d d e d s h a r e s m a tr ix th e s e th r e e m a t r i c e s a re d e s c r i b e d in M. G ra s s in i ( 2 0 0 1 ) ; th e n , th e v e c to rs : o u t : th e se c to r a l o u t p u t v e c t o r p c e io : the p r i v a t e c o n s u m p t i o n e x p e n d i t u r e v e c t o r c c p : th e p r i v a t e c o l l e c t i v e c o n s u m p t i o n v e c t o r g o v : th e g o v e r n m e n t c o n s u m p t i o n v e c t o r p d e : th e i n v e s t m e n t b y p r o d u c e r s v e c t o r v e n : th e in v e n to r y c h a n g e s v e c t o r
1 The following acronym s are from the configuration file o f the Latvian vamfile. This file, named vamlat.cfg, is reproduced in the Appendix 1. This file drives the construction o f the vam file by using G7.
ex : th e e x p o r t s v e c t o r im p : th e im p o r t s v e c t o r
a r e f ro m th e fin al d e m a n d s e c t o r o f th e 1 0 ta ble; in d e e d , th e i m p o r t s v e c t o r is th e r o w s u m o f th e im p o r t f l o w s m a tr ix .
O t h e r v e c t o r s c a m e fro m th e v a l u e a d d e d s e c t o r o f th e 1 0 ta b le. T h e y are: w a g e v : w a g e s c o n t r a c v : e m p l o y e r s ' a c tu a l so c ial c o n t r i b u t i o n c o n t r i m v : e m p l o y e r s ' i m p u t e d so c ial c o n t r i b u t i o n t a x p r o d v : o t h e r t a x e s o n p r o d u c t i o n s u b s p r o d v : o t h e r s u b s i d i e s o n p r o d u c ti o n k c o n s v : fix e d c a p ita l c o n s u m p t i o n o p s r p l v : p r o f i t s - n e t o p e r a t i n g s u r p lu s m i x i n c v : n e t m i x e d i n c o m e v ad : v a l u e a d d e d B e s i d e s t h e s e v e c t o r s w h i c h c o n t a i n th e v a l u e a d d e d c o m p o n e n t f lo w s ( th e y e n d w ith a V w h i c h s t a n d s fo r v a l u e s ), th e re a re v e c to r s r e la te d to t h e
unit o f
output
( th e flo w d i v i d e d b y th e se c to r a l o u t p u t in c o n s t a n t p ric e s ):w a g e : w a g e s c o n t r a c : e m p l o y e r s ' a c tu a l so c ial c o n t r i b u t i o n c o n t r i m : e m p l o y e r s ' im p u t e d so c ial c o n t ri b u tio n t a x p r o d : o t h e r t a x e s on p r o d u c ti o n s u b s p r o d : o t h e r s u b s i d i e s o n p r o d u c ti o n k c o n s : fix e d c a p ita l c o n s u m p t i o n o p s r p l : p r o fit s - n e t o p e r a t i n g s u r p lu s m i x i n c : n e t m i x e d i n c o m e u n itv a : v a l u e a d d e d T h e r e a r e o t h e r v e c to r s t a x p r o d v : th e n e t t a x e s o n p r o d u c t s v e c to r w a g v : th e c o m p e n s a t i o n o f e m p l o y e e s v e c t o r in d t a x v : th e o t h e r n e t t a x e s o n p r o d u c t i o n v e c t o r r g e v : th e o p e r a t i n g s u r p l u s a n d o t h e r i n c o m e B e s i d e s t h e s e v e c to r s a n d m a t r i c e s o b t a i n e d d i r e c t l y o r th r o u g h v e r y s i m p l e m a n i p u l a t i o n f r o m t h e 1 0 ta ble, t h e re a r e o t h e r v e c t o r s s u c h as: e m p : th e e m p l o y m e n t v e c t o r a n d o t h e r s w h i c h r e p r e s e n t s e x o g e n o u s ( f o r th e s t a n d i n g a l o n e m o d e l ) v a r i a b l e s s u c h as: p im : t h e im p o r t p r ic e s v e c t o r a s w e ll a s v e c t o r s g e n e r a t e d d u r i n g th e s o lu t io n o f th e m o d e l: c i m : th e c o s t o f i m p o r t e d m a t e r i a l s v e c t o r p d m : th e d o m e s t i c p r ic e s v e c t o r
B r i d g e m a t r i c e s for p e r s o n a l c o n s u m p t i o n a n d i n v e s t m e n t a r e n o t y e t a v a i l ab le. C o n s e q u e n t l y , i n v e s t m e n t s b y i n v e s to r s a n d p e r s o n a l c o n s u m p t i o n c l a s s i fied on th e s id e o f th e c o n s u m e r a re n o t y e t i n t r o d u c e d in th e L a t v i a n v a m file. 3 .2 . E q u a t i o n f o r m u l a t i o n T h e m o d e l c o n t a i n s o n l y a se t o f im p o r t s h a r e e q u a tio n s . W h a t e v e r th e a n a ly ti c a l s tr u c t u re o f a s e c to ra l i m p o r t e q u a t i o n m a y b e , total ( s e c to r a l) o u t p u t a p p e a r s a m o n g the e x p l a n a t o r y v a r ia b le s . In fact, to tal real r e s o u r c e s ( i m p o r t s p l u s o u tp u t) v a r y to m a t c h th e to tal ( i n t e r m e d i a t e p lu s fin al) real d e m a n d . A n i n c r e a s e ( d e c r e a s e ) o f total d e m a n d g e n e r a t e s a n in c r e a s e ( d e c r e a s e ) in total r e s o u r c e s ; th e n , an i n c re a s e ( d e c r e a s e ) in d o m e s t i c o u t p u t is e x p e c te d to b e a s s o c i a t e d to a n i n c r e a s e ( d e c r e a s e ) o f im p o r ts . In o t h e r w o r d s , total d e m a n d is s a tis f ie d w i t h d o m e s t i c a n d f o re ig n p r o d u c t i o n s ; h o w e v e r , th e s h a re s o f th e s e tw o " r e s o u r c e s " m a y v a ry . I m p o rt s s u b s t itu tio n m e a n s th a t i m p o r t s ta k e the p la c e o f d o m e s t i c p r o d u c t i o n ; im p o r ts e l a s tic ity ( n o t e q u a l to o n e ) e v o k e s that, a s G D P in c re a s e s , im p o r t s m a y i n c r e a s e ( e la s tic ity g r a t e r th a n o n e ) o r d e c r e a s e (e la s tic ity le ss t h a n o n e ) its w e i g h t o v e r d o m e s t i c r e s o u r c e s .
A s f o r a n y e c o n o m i c v a r ia b le , th e re m a y b e m a n y a n a l y t i c a l f o r m s s u g g e s t e d by t h e p u r e e c o n o m i c th e o r y , b y the e c o n o m e t r i c a s s u m p t i o n s a b o u t the " p r o b a b i l i t y g e n e r a t i n g f u n c ti o n " a n d b y th e e c o n o m i c w i s d o m . T h e p u r e e c o n o m i c th e o r y , w h i c h is a s y n o n y m o u s o f n e o c l a s s i c a l t h e o r y , le a d s to a n a ly ti c a l f o r m s d e d u c e d th r o u g h a n o p t i m i z a t i o n p r o c e s s a p p l i e d to r a r e l y o b s e r v e d f u n c tio n s ( s u c h a s utility f u n c t i o n s a n d p r o d u c t i o n f u n c ti o n s ) b u t w i d e l y a v a i l a b l e f ro m e c o n o m i c te x t b o o k s . T h e e c o n o m e t r i c a s s u m p t i o n s m a y i g n o r e th e e c o n o m ic t h e o r y in f a v o u r o f a rich a n d s o p h is tic a te d d e s c r i p t i o n o f th e r a n d o m e r r o r a t t a c h e d to a n y a n a ly ti c a l fo rm . F o r a g iv e n e c o n o m i c p h e n o m e n o n , th e e c o n o m i c w i s d o m s u g g e s t s a list o f d e t e r m i n a n t s s u p p o r t e d b y e c o n o m i c t h e o r i e s a n d b y the m o d e l b u i l d e r 's e x p e r i e n c e . A n y h o w , s e c to r a l o u t p u t is e x p e c t e d to b e a l w a y s a m o n g th e e x p l a n a t o r y v a r ia b le s ; t h is im p l i e s a s i m u l t a n e o u s s o lu t io n o f s e c to r a l i m p o r t a n d se c to r a l t o tal o u t p u t 2. H o w e v e r , th e c h o i c e o f th e a n a ly ti c a l f o r m is u p to th e m o d e l b u ild e r. In th e p r e s e n t c a s e , s e c to r a l i m p o r t s h a r e e q u a t i o n s h a v e b e e n i m p l e m e n t e d . T h e i m p o r t s h a r e is r e l a t e d to th e to tal r e s o u r c e ( i m p o r t s p l u s to tal o u tp u t) . T h e a n a ly ti c a l f o r m is v e r y n a i v e ; g i v e n the se c to ra l i m p o r t s h a r e at th e b a s e y e a r , im psho, it v a r ie s f o l l o w i n g a tren d . T h e n f o r e a c h s e c to r , th e im p o r t s h a r e e q u a tion h a s th e f o l l o w i n g f o rm
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m a y b e p o s itiv e o r n e g a tiv e in te r p r e tin g re s p e c tiv e ly th e c a s e o f im p o r t p e n e tr a tio n o r d o m e s tic o u tp u t e x p a n s io n .The s k e le to n o f th e L a tv ia n m o d e l a llo w s us to s ta rt a p re lim in a r y e v a lu a tio n o f th e m o d e l p e r f o rm a n c e . A ll th e final d e m a n d c o m p o n e n ts a re a s s u m e d e x o g e n o u s ; e a c h s e c to r o f a n y fin al d e m a n d c o m p o n e n ts f o llo w s th e c o r r e s p o n d in g to ta l. In th e p r e s e n t v e r s io n o f th e m u ltis e c to ra l m o d e l, b o th im p o r ts a n d o u tp u t a re e n d o g e n o u s v a ria b le s . S in c e im p o r ts h a v e p ro c e s s e d a s a n y o th e r fin al d e m a n d c o m p o n e n t, th e ir s im u la te d v a lu e s m a y n o w b e c o m p a re d w ith th e " p a s t" a n d " fu tu re " r e c o n stru c te d v a lu e s . IV. S I M U L A T I O N S C E N A R I O S
The s c e n a r io f o r th e b a s e lin e is b a s e d u p o n h is to ric a l d a ta ( 1 9 9 6 - 2 0 0 3 ) and fo re c a s ts p r o v id e d b y th e E u ro p e a n C o m m is s io n ( 2 0 0 4 - 2 0 0 7 ) . F u rth e rm o re , an a s s u m p tio n a b o u t th e p e rio d 2 0 0 8 —2 0 1 0 is m a d e to p r o d u c e s im u la tio n s c o v e r ing th e first d e c a d e o f th e c u r r e n t c e n tu ry .
A t p r e s e n t, a s im p le s y s te m o f im p o rt e q u a tio n s is a d d e d to th e a c c o u n tin g id e n titie s c o m in g fro m th e L a tv ia n In p u t-o u tp u t ta b le . T h e n , all th e fin al d e m a n d a n d v a lu e a d d e d c o m p o n e n ts a re e x o g e n o u s ly g iv e n . T h e ir v a lu e s a re e x te n d e d f o llo w in g th e g ro w th r a te s p re s e n te d in T a b le 4 .1 . T h is ta b le in c lu d e s th e " o b se rv e d " im p o rt g r o w th ra te s (y e a rs 1 9 9 7 -2 0 0 3 ), a n d fro m 2 0 0 4 u p to 2 0 0 8 th o se a s s u m e d by th e E u ro p e a n C o m m is s io n ; fo r th e la st th r e e y e a r s , th e im p o rt g ro w th r a te s a re a s s u m e d c o n s ta n t a ro u n d 7,8 p e r c e n t f o r th e s e c o n d h a l f o f th e first d e c a d e . F ro m I a b le 4 .1 , w e s e e th a t a m o n g th e fin al d e m a n d c o m p o n e n ts , h o u s e h o ld c o n s u m p tio n is a s s u m e d to s e rio u s ly c u t d o w n its g r o w th ra te in th e last th re e y e a r s o f th e s im u la tio n h o riz o n . T h is a s s u m p tio n w ill b e u s e fu l to e m p h a s iz e th e im p o r ta n c e o f a m u ltis e c to r a l m o d e llin g a p p ro a c h .
F ro m th e in p u t- o u tp u t ta b le a c c o u n tin g id e n titie s , o u tp u ts a n d p ric e s a re e n d o g e n o u s b y d e f in itio n fo r an in p u t- o u tp u t te x tb o o k L e o n t ie f m o d e l. S in c e th e re a l s id e a n d th e n o m in a l s id e o f th e m o d e l a r e n o t y e t in te g ra te d , o n ly th e im p a c t of th e s im p le s e c to r a l im p o rt s h a re e q u a tio n s on G D P is p r e s e n te d .
The g ro w th r a te s o f T a b le 4.1 a llo w s us to c o m p u te th e fin al d e m a n d v e c to r an d to a p p ly th e L e o n t ie f e q u a tio n to o b ta in th e s e c to ra l to ta l o u tp u t v e c to r. C o n s e q u e n tly , th e G D P is e a s ily c o m p u te d .
I h e in tr o d u c tio n o f s im p le im p o rt s h a re e q u a tio n s m a k e s im p o r ts e n d o g e n o u s ly d e te r m in e d . In su c h a c a se , d iffe re n c e s b e tw e e n im p o r ts o b s e rv e d a n d are m irro re d in th e G D P o n ly . T h is is sh o w n in T a b le 4 .2 w h e r e th e c o m p a r is o n b e tw e e n th e b a s e lin e s c e n a rio o f T a b le 4.1 an d th e s im u la tio n r e s u lts w ith im p o rts
e n d o g e n o u s ly d e te r m in e d is s h o w n . T h is ta b le re p ro d u c e s th e g r o w th ra te o f T a b le 4 .1 . F o r e a c h ite m , g ro w th ra le s a re sh o w n in tw o lin e s ; th e firs t lin e c o n ta in s th e v a lu e s o f th e s c e n a rio p r e s e n te d in T a b le 4 .1 : th e s e c o n d lin e c o n ta in s th e d if fe r e n c e fro m th a t s c e n a rio fo r th e s im u la tio n w h e re th e im p o r ts a re c o m p u te d by m e a n s o f th e im p o rt s h a re e q u a tio n s . T h e n , it is c le a r th a t th e d if fe r e n c e a re z e ro fo r th e e x o g e n o u s v a ria b le s ; d is c re p a n c ie s a ris e fo r th o s e v a ria b le s e n d o g e n o u s ly d e te r m in e d b y th e m o d e l: G D P a n d im p o rts. T h e s e d is c r e p a n c ie s c o m e fro m se c to ra l d is c re p a n c ie s g e n e r a te d b y th e im p o rt s h a re e q u a tio n s . F o r a n u m b e r o f s e c to rs . F ig u re s 4 . 1 - 4 . 7 sh o w th e im p o rts g e n e ra te d a c c o r d in g to th e g ro w th ra te s o f th e b a s e lin e s c e n a rio ( m a r k e d a s " s c e n a rio " ) a n d th e im p o r ts e n d o g e n o u s ly d e te r m in e d (m a r k e d a s " s im u la te d " ). It is p o s s ib le to n o te th a t th e c y c le d u e to th e R u s sia n c r is is in A u g u s t 1998 is w ell d e te c te d for th e s e c o n d a ry raw m a te ria l (F ig u r e 4 .7 ) b u t fa ile d in o th e rs s e c to rs (in p a rtic u la r a g r ic u ltu r e a n d h u n tin g a n d H o tel a n d re s ta u r a n t s e rv ic e s , F ig u re 4.1 a n d 4 .5 ). T h e s h a rp r e d u c tio n o f th e g ro w th ra te in h o u s e h o ld c o n s u m p tio n in th e y e a r s 2 0 0 8 - 2 0 1 0 d o e s n o t in flu e n c e b a s ic m e ta ls , fo re s tr y , lo g g in g a n d S e c o n d a ry raw m a te ria ls , w h ile its im p a c t is c le a rly s h o w n in s e c to rs su c h e l e c tric a l e n e rg y , h o te l a n d r e s ta u r a n ts a n d a g r ic u ltu r e a n d h u n tin g w h ic h a r e re la te d to im p o rta n t s h a re s o f th e h o u s e h o ld 's b u d g e t.
Agriculture and hunting, products and services
Im ports I ľ /- ---/ / / /
У
^ ....š ŕ * У . K4223 у X „ . - v " s ý ' " ý * x A ^ 49800 „ ' V ...-«Зх S & r " . -1_____ 1--- i---— 1--- 1— ■ i i i 2000 2005 2010 scenario —(д... simulated F ig u re 4 .1 . S o u r c e : O w n c a lc u la tio n .Growth rates o f the baseline scenario 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 Household Consumption 7.0 0.6 -1 .4 5.1 8.2 7.1 8.9 8.4 7.8 7.5 7.0 2.1 Government Expenditure -4 .0 16.4 -3 .2 2.6 8.4 4.0 3.0 2.0 2.0 2.0 2.0 3.1 Collective Consumption 0.0 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 11.7 Investment 12.2 51.7 -Ó.7 12.3 9.9 3.7 10.6 11.7 10.6 10.5 9.1 6.6 Exports 8.8 4.5 -13.5 10.9 6.2 7.5 6.8 7.8 8.2 8.1 8.2 7.8 Final Demand 9.6 10.5 -6.1 7.9 8.0 6.3 7.9 8.1 7.9 7.8 7.4 5.2 Imports 9.5 13.2 -15.4 7.0 10.5 7.1 13.0 8.0 7.7 7.8 7.7 7.8
S o u r c e : CSB o f Latvia. Own calculation.
O v erv ie w of th e L atv ia n Economy in th e C o n te x t. .
First line: baseline growth rates; Second line: simulation growth rates measured as difference from the first line
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2007-2010
Household Consumption 7.0 0.6 1.4 5.1 8.2 7.1 8.9 8.4 7.8 7.5 7.0 2.1
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Governm ent Expenditure ^t.O 16.4 -3 .2 2.6 8.4 4.0 3.0 2.0 2.0 2.0 2.0 3.1
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Collective Consumption 0.0 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 11.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Investment 12.2 51.7 -6 .7 12.3 9.9 3.7 10.6 11.7 10.6 10.5 9.1 6.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Exports 8.8 4.5 -13.5 10.9 6.2 7.5 6.8 7.8 8.2 8.1 8.2 7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Final Demand 9.6 10.5 -6.1 7.9 8.0 6.3 7.9 8.1 7.9 7.8 7.4 5.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Imports 9.5 13.2 -15.4 7.0 10.5 7.1 13.0 8.0 7.7 7.8 7.7 7.8 0.0 -0 .6 9.1 1.8 -2.3 -0.7 -4.6 0.8 0.8 0.6 0.2 -2 .2 GDP 5.0 8.7 -0.2 8.3 6.5 5.7 4.5 8.0 7.8 7.6 7.0 2.9 0.0 0.4 6.5 -1 .2 1.3 0.4 2.8 -0 .6 -0 .6 -0.5 -0.2 1.4 Maur izio G ra ss in i. R e m ig ijs ľo č s, G u n ta P in k e, I. u d is N e id e rs
B a s i c m e t a l s I m p o rts s c e n a r io q s im u la te d Figure 4.2. S o u r c e : Own calculation. E l e c t r i c a l e n e r g y , g a s , s t e a m a n d h o t w a t e r Im p o rts
F o r e s t r y , l o g g i n g ; p r o d u c t s a n d s e r v i c e s Im p o rts s c c n a n o n s im u la te d Figure 4.4. S o u r c e : Own calculation. H o t e l a n d r e s t a u r a n t s e r v i c e s 2000 s c e n a r io _ q s im u la te d
Furniture; other manufactured goods n.e.c.
I m p o rts s c e n a r io q s im u la te d Figure 4.6. S o u r c e: Own calculation. S e c o n d a r y r a w m a t e r i a l s Im p o rts s c e n a rio —g — s im u la te dV. C O N C L U S I O N S
I h is p a p e r s h o w s th e first a tte m p t to b u ild a m a c r o e c o n o m ic m u ltis e c to ra l m o d e l of th e L a tv ia n e c o n o m y . L a tv ia , as a n y c o u n try w h ic h b e g a n th e tr a n s i tio n to w a r d s a m a rk e t e c o n o m y a f te r th e c o lla p s e o f th e S o v ie t U n io n , h a s e x p e rie n c e d a d e e p e c o n o m ic c r is is fo r a b o u t fiv e y e a rs . T h e re s h a p in g o f th e e c o n o m y a n d th e in s titu tio n a l re fo rm s - q u ic k ly in tro d u c e d to m a tc h th e E u ro p e a n U n io n o b lig a tio n s - b e g a n to p r o d u c e p o s itiv e e ff e c ts a ro u n d m id n in e tie s ; at p re s e n t, L a tv ia b e lo n g s to th e g r o u p o f E u ro p e a n U n io n M e m b e r S ta te s w h ic h p e rfo rm m u c h b e tte r th a n th e f o rm e r E U -1 5 c o u n trie s .
f h e L a tv ia n S ta tis tic a l O ff ic e h a s a lre a d y a d o p te d th e E u ro s ta t s ta n d a r d s in c lu d in g th e p r o d u c tio n o f in p u t-o u tp u t ta b le s fo r th e L a tv ia n e c o n o m y . T h e ta b le o f th e y e a r 1997 h a s b e e n u se d a s th e s ta rtin g ta b le fo r th e d e v e lo p m e n t o f a m a c r o e c o n o m ic m u ltis e c to r a l m o d e l.
T h e s k e le to n o f th e L a tv ia n m o d e l a llo w s u s to g iv e e v id e n c e o f th e im p o r ta n c e o f th is m o d e llin g a p p ro a c h fo r p o lic y s im u la tio n p u r p o s e s .
f h e p r o g r e s s iv e e n r ic h m e n t o f th e s ta tis tic s p r o d u c e d by th e L a tv ia n S ta tis tic al O ff ic e w ill s u re ly fo s te r th e im p le m e n ta tio n o f th e m o d e l.
R E FE R E NC E S
A 1 m o n С., B u с к I e r M. В., H о r w i t z L. M., R e i n b o 1 d T.C . (1974), 1985: In terindustry Forecasts o f the American Economy, D. H. Ileatg and C om pany L exing ton, M assachusetts, USA
Л I m o n C. (1991), The Inforum Approach to Interindustry Modeling, “ Econom ic Sys tem s R esearch”, vol. 3, no. 1, 1-8
G r a s s i n i M. (2001), The Core o f the Multisectoral INFORUM Model, [in:] M. G r a s s i n i (ed.) Contributions on Multisectoral Modelling, C entro Editoriale T oscano, Firenze, Italy
M inistry o f F inance o f the Republic o f Latvia (2004), C onvergence Program m e o f Re public o f Latvia 2004-2007, http://europa.eu.int/com m /econom y finance/about/ activitics/sm V countrv/countrvľiles/lv/lv20032004 en.p d f
Maurizio Grassini,
Remigijs
Počs, Gunia Pinke, Ludis NeidersS P R A W O Z D A N IE O STANIK G O S P O D A R K I Ł O T W Y W K O N T E K Ś C IE R O Z W O J U W I E Ł O S E K T O R O W E G O M A K R O E K O N O M I C Z N E G O
M O DE LU Ł O T W Y
O pracow anie zaw iera opis gospodarki Łotw y w m om encie w ejścia do Unii E uropej skiej. O bejm uje on także lata poprzedzające, począw szy od połow y lat d ziew ięćdziesią tych. Z aprezentow ano projekcje w ybranych zm iennych m akroekonom icznych zgodnie z program em K onw ergencji dla Republiki Łotwy. O pis koncentruje się na podstaw o w ych w skaźnikach takich ja k PKB, zatrudnienie, płace, inw estycje i inflacja; w miarę dostępności danych przedstaw iono te kategorie w ujęciu sektorow ym , co pozw ala doce nić głębokość zm ian strukturalnych, ciągle je szc ze trw ających.
W drugiej części opracow ania przedstaw iono w ielosektorow y m odel łotew skiej go spodarki. Stanow i on pierw szy krok w kierunku budow y now oczesnego m odelu input- -output zgodnego z podejściem INFO RU M . Szkielet konstrukcji m odelu łotew skiego oparty je st na tablicy input-output opracow anej przez Łotew ski U rząd S tatystyczny dla 1997 r. P odręcznikow y model Lcontiefa w zbogacony został o blok rów nań importu. S ym ulacja oparta na scenariuszu zgodnym z program em K onw ergencji dla Republiki Ł otw y daje m ożliw ość oceny potencjału w zakresie m odelow ania polityki ekonom icznej tkw iącego w tym podejściu.