Latvia’s reindustrialization: International background and domestic projects

Abstract

The aim of the paper is to analyse preconditions of reindustrialization of Latvia’s economy, as well as potential contradictions of this process. Economic development of Latvia since regaining national independence had been featured by continuously declining share of manufacturing in national economy. In 1997–2007 no country in Europe experienced as rapid deindustrialization as Latvia. Public recognition of urgent need for restoration of production sector came essentially late. Ultimately, an official document, “Guidelines on National Industrial Policy of Latvia”, was approved in 2013 by the Cabinet of Ministers. The first among the targets determined by the document is to raise the share of manufacturing in Latvia’s GDP to 20% by 2020. As demonstrated in paper, Latvia’s National Industrial Policy document is in line with worldwide renaissance of interest in industrial policy. Apprehension appears, however, that this project of reindustrialization of Latvian economy may prove forgotten. Traditional statements concerning inverse relationship between economic growth and share of manufacturing in GDP are verified in regard to the Baltic states. It is argued in the paper that further decline of manufacturing’s share in national output is not unavoidable. In regard to economic policy, need for a more active role of government in reindustrialization process is advocated. Simultaneously, some questions on compatibility of reindustrialization with other goals of economic policy are raised. Research methodology is based upon application of economic theory, analysis of literature and official documents, comparison of statistical data, and author’s own calculations.