Productivity and its impact on the competitiveness of Latvia

Abstract

Productivity is the main key factor for Latvia to increased prosperity, ensuring efficient use of resources. Due to limited availability of resources and the increasing competition in the global markets, it is important for Latvia to support its economic growth through increased productivity. Since 2010 the productivity of Latvia’s economy has been at the level of 40-45% of the EU average (Eurostat Database, 2017). A further increase in labour costs is inevitable in the open labour market conditions, therefore, strengthening the competitiveness of Latvian is largely determined by the ability to reduce the productivity gap with the advanced economies. One of the main challenges for Latvia is the creation of new competitive advantages that are associated with investments in the latest technologies, innovation, research, human capital, efficient allocation of resources and redistribution that comes with the behavioural changes of economic subjects. Economic structural transformation process is largely dependent on the quality of the institutional framework, which provides goods and resources market efficiency, minimizing the redistribution process costs and risks, thereby strengthening the country's competitive benefits. The aim of the research is to assess the potential for productivity growth to improve competitiveness of Latvia to identify the main obstacles that limit the attraction of resources and redistribution of higher value-added products and prepare recommendations for policies on the micro, sectoral and macro level. Research has high practical value that is related to OECD recommendation to monitor productivity in Latvia.