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Comparative Economic Research, Volume 21, Number 1, 2018
10.2478/cer–2018–0002
KRZYSZTOF FALKOWSKI*
Competitiveness of the Baltic States in International High‑Technology
Goods Trade
Abstract
The aim of the article is to assess the international competitiveness of the Baltic
States (Estonia, Latvia, Lithuania) in high‑technology goods trade. To this end,
Balassa’s method of analysing revealed comparative advantages (RCA) was ap‑
plied. An in‑depth analysis of the dynamics of RCAs in the Baltic States’ exports
between 1997 and 2014 has shown that their international competitiveness in this
regard is relatively low, the direct consequence of which is the growing negative
trade balance in high‑technology goods. Also, during the analysed period Lithua‑
nia possessed no RCAs in trading high‑technology goods, while the number of ad‑
vantages for Estonia and Latvia was relatively small. Still, among the three Baltic
States, Estonia was found to be most competitive in this regard, although in Latvia
some progress was observed. In contrast, Lithuania not only had the lowest values
of RCA, but also it did not record any improvement in the analysed period.
Keywords: International Competitiveness, Revealed Comparative Advantages
(RCA), High‑Technology Goods, Baltic States, Estonia, Latvia, Lithuania
JEL: F14, O57, P45
Krzysztof Falkowski
* Ph.D., Assistant Professor at the Warsaw School of Economics, World Economy Research
Institute, Collegium of World Economy, e‑mail: kfalkow@sgh.waw.pl
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26 Krzysztof Falkowski
1. Introduction
In today’s increasingly globalized world economy, characterized by the growing
internationalization of business activities and international co‑operation, the rising
importance of transnational corporations and the enormous acceleration of the ICT
revolution, additionally accompanied by far‑reaching liberalization of economic
relations, has had the eect of making international competitiveness of economies
also subject to certain changes (Hämäläinen 2003). These changes concern not
only the general nature of international competitiveness, but also the role and sig‑
nicance of dierent factors determining it (Falkowski 2017b). Namely, nowadays
various factors whose importance was much lower or even underrated a few dec‑
ades ago have become much more important, such as the quality of human capital,
the level of development, and the quality of infrastructure, especially the soft one,
which is responsible for the creation and diusion of knowledge, the innovative‑
ness of the economy and the eciency and eectiveness of institutions as broad‑
ly understood (Miozzo & Walsh 2010). Moreover, due to changes in the structure
of global demand, we can also observe the growing importance of goods and ser‑
vices which are more technologically advanced (Weresa 2014).
Undisputedly, from the point of view of competition in contemporary interna‑
tional trade and at the same time of a country’s competitive position in the global
economy, it is especially desirable for a country to possess comparative advan‑
tages in high‑technology goods created in industries that are intensively employ‑
ing modern production factors and are characterized by a high level of innovation
(Wu et al. 2017). Moreover, as Dollar and Wol (1993) stress, there is a strong cor‑
relation between a country’s competitiveness in the area of high‑technology goods
and its ability to maintain high incomes and high wages. This is especially impor‑
tant for small, open economies with relatively small growth potential due to the
limited nature of their natural, capital and human resources, such as the econo‑
mies of the countries analysed in this article (Estonia, Latvia and Lithuania).
Still, relatively recently, i.e. in the 2000s, these three small economies were
dubbed by economists the “Baltic tigers”, owing to their very dynamic econom‑
ic growth recorded at this time (Åslund 2015; Kuokštis 2015; Korhonen 2013;
Hübner 2011). In view of the above, the question of international competitiveness
of the economies of the three Baltic States (Estonia, Latvia and Lithuania) in terms
of high‑technology goods seems very relevant. It is an interesting and important
research issue also because having comparative advantages in the modern world
economy in this respect can be an important factor for the development of the en‑
tire economy, the best examples being Singapore or South Korea. Therefore, the
purpose of this article is to conduct an in‑depth analysis of the dynamics of the
revealed comparative advantages in Estonian, Latvian and Lithuanian high‑tech‑
nology goods exports. For this analysis, which covers the years 1997–2014, I used
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27Competitiveness of the Baltic States…
the methodology of measuring the competitiveness of the economy in internation‑
al trade developed by B. Balassa (the RCA indicator).
In the international literature, there are studies on the competitiveness of the
Baltic States’ economies, but there is a noticeable lack of in‑depth, comparative
research into their international competitiveness in high‑technology goods. It is the
intention of this article to ll in the gap in this area.
This article puts forth the thesis that the competitiveness of the Baltic States
in contemporary international trade in high‑technology goods is low. This is ev‑
idenced by the absolute lack of any comparative advantages in high‑technology
goods trade in the case of Lithuania, and the relatively small number of compara‑
tive advantages possessed by Estonia and Latvia. In relative terms, out of all three
Baltic States Estonia is the most competitive in this regard, although in Latvia
some progress has been observed over the recent years.
2. Literature review
The Baltic States are quite a popular topic of economic research and analysis, es‑
pecially in terms of their experience of systemic transformation after the collapse
of the USSR, but also, amongst others, into the reasons for their dynamic econom‑
ic growth in the 2000s (i.a. Åslund 2015; Hübner 2011), the eects of the global
crisis of 2008 (i.a. Kattel & Raudla 2013), or their integration with the EU and the
eurozone (i.a. Auers 2014).
As far as the body of research on the competitiveness of the Baltic States
in international trade published in international literature is concerned, the results
of Ber natonyte and Normantiene (2009) are worth mentioning. They stress that dif‑
ferences in the trade structure and comparative advantages of the Baltic States are
mostly caused by these countries’ dierent manufacturing bases, but also by dif‑
ferent administrative reforms implemented and dierent political frameworks put
in place. At the same time, the Baltic States compete with each other in exports
of similar categories of goods. The specialization of all three Baltic States in in‑
ternational trade in low‑technology goods has been pointed out by Landesmann
et al. (2015) and Pilinkiene (2015). This conclusion nds conrmation in Misztal
(2009), who, based on an analysis of data for 1996–2006 (by SITC section), identi‑
ed the main competitive advantages of all three Baltic States in international trade
as being in Crude materials inedible except fuels and Miscellaneous manufactured
articles, and also in Manufacture goods classied chiey by material (Estonia and
Latvia) and Food and live animals (Lithuania). Such similarities in Estonia’s and
Latvia’s competitive advantages were also observed by Remeikienė et al. (2015),
according to whom Latvia and Estonia possess a strong and medium competitive
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28 Krzysztof Falkowski
position, respectively, in raw materials, while Lithuania enjoys a comparative ad‑
vantage in mineral fuels, lubricants and related materials. In turn, Pilinkiene (2014)
proves that there is a strong similarity between the competitive proles of Latvia
and Lithuania as in both Latvia and Lithuania there is a strong dominance of tex‑
tiles and clothing industries, whereas no noticeable competitive advantages can
be recorded among Estonian industries.
What’s more, insofar as the competitive proles of the Baltic States are con‑
cerned, in the case of Estonia Laaser et al. (2015) observe that the country records
positive RCA values for labour‑intensive and material‑intensive goods, which still
account for 65 per cent of Estonian exports. As for research‑intensive as well
as capital‑intensive goods, on the other hand, Estonia does not possess any such
advantages (RCA <0, in 1999–2012), with RCA values for research‑intensive goods
being much more negative than for capital‑intensive goods. Signicantly, as Kil‑
vits (2014) points out, since the 2008 global crisis it has been all the more desira‑
ble in Estonia to accelerate structural changes in the manufacturing sector in order
to increase its productivity (signicantly reduced after the crisis, as argued by An‑
drews and de Serres (2016)) as well as the technological advancement of the man‑
ufactured goods so that they can eectively compete in international markets, not
only in the eld of wood and wooden products (Eesti Pank 2016).
Secondly, with respect to research on the international competitiveness of Lat‑
via’s economy, Davidsons (2005) stressed that the most important export items
in this country were little‑processed or unprocessed goods, as well as resource‑in‑
tensive goods and the least human‑capital‑intensive goods. Similar conclusions
were reached by Benkovskis (2012) and Sauka (2014). Interestingly though, Lat‑
via’s competitiveness diers between markets, which means that its human‑cap‑
ital‑intensive goods are competitively only in the CIS market, whereas in the EU
market Latvia’s advantages are only recorded in exports of resources‑intensive and
labour‑intensive goods. Unfortunately, the falling productivity in export industries
observed in recent years means that the international competitiveness of the Latvi‑
an economy is gradually decreasing too (Skribane & Jekabsone 2013). Therefore,
as stressed by Strašun (2015), what needs to be done by the authorities to boost
growth in the existing industries and companies which are higher up on the value
chain is to implement structural changes, as well as those which would support
the creation and development of new industries and high‑technology companies.
There are a number of ways this can be achieved, from educational reforms (e.g.
commercialisation of ideas, bringing academia closer to business, and promotion
of innovations) to changing the tax system (e.g. reducing the grey economy, thus
securing nancing for companies). Fedotovs (2010) also came to similar conclu‑
sions in this respect.
And thirdly, with regard to the international competitiveness of the Lithuanian
economy, interesting research was carried out by Startiene & Remeikiene (2014),
who clearly demonstrated that the country’s strongest competitive position in in‑
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29Competitiveness of the Baltic States…
ternational markets is in the areas of food, chemicals, and wood and textiles, i.e.
goods with low technological advancement. Similar conclusions were reached by,
inter alia, Laskiene et al. (2017), Kalendiene & Miliauskas (2011) as well as Travki‑
na & Tvaronavieiene (2010). In turn, Saboniene et al. (2013), based on their research
on the export specialization of the Lithuanian manufacturing industry, emphasized
the particular importance of low‑technology manufacturing industries, which gen‑
erally prevail in the Lithuanian trade structure, for the country’s economy. More‑
over, they observed that Lithuania’s low‑technology and medium‑low‑technology
exports are vital for the country’s economic growth and exports, therefore it would
be advisable to replace the cost‑based comparative advantages in these industries
with non‑price factors based on research and innovation. On one hand, this con‑
rms the still very low importance of high‑technology goods both in the national
income creation and in Lithuanian exports, which depend heavily on traditional
industries (Laskiene & Venckuviene 2014; Saboniene 2009). On the other hand,
its also highlights the need to strengthen the innovativeness of the Lithuanian
economy if the country wishes in the future to not only to increase the impor‑
tance of these goods in the economy, but also to possess competitive advantag‑
es in the international trade in this category of goods. Nevertheless, as stressed
by Saboniene et al. (2013), what remains the greatest challenge is to change Lith‑
uania’s exports structure to include more high‑value‑added knowledge‑intensive,
high‑skill‑labour‑intensive and technology‑intensive goods. This will prove espe‑
cially dicult since, as observed by Pridotkiene et al. (2013), R & D expenditures
in all sectors of the Lithuanian manufacturing industry are very low, and as a mat‑
ter of fact even the high‑technology sector does not meet the OECD criteria for
high‑technology industries.
3. Research methodology and data
There is no universally accepted denition of international competitiveness in the
economic literature, which best illustrates the complexity and multifaceted nature
of this concept. This is due to, among other things, dierent approaches to the sub‑
jective scope of competition as such, dierences in the approaches to its sourc‑
es, as well as dierent systems of values professed by economists who dene
it (Bhawsar & Chattopadhyay 2015; Delgado et al. 2012; Fagerberg 1996; Pace &
Stephan 1996). A synthetic overview of them can be found in, e.g., Bhawsar &
Chattopadhyay (2015), Misala (2014), Balkyte & Tvaronavičiene (2010), as well
as Banwet et al. (2002).
However, as it pertains to the issue presented in this article, it is necessary to ex‑
plain how the concept of competitiveness of an economy in international trade is de‑
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30 Krzysztof Falkowski
ned in the literature. In this respect, there is also a wide range of denitions in use.
According to the OECD (2005), competitiveness should be understood as an econ‑
omy’s ability to compete fairly and successfully in the international goods and ser‑
vices markets, which, as a result, leads to improved living standards of the citizens
of a given country. A very similar denition is provided by Barker & Köhler (1998).
In turn, according to Scott & Lodge (1985), a competitive economy is able to create,
produce, distribute, and/or service products in international trade while earning ris‑
ing returns on its resources. Similarly, Carbaugh (2017) states that international com‑
petitiveness boils down to the ability to develop, produce and sell goods and services
which are more attractive because of their price and/or quality than the export oer
of other countries, as evidenced by the growing share of a given country in interna‑
tional trade with respect to the sale of such goods as compared to other countries (Fa‑
gerberg 1988). It is also worth mentioning the denition used by Weresa (2014), who
stresses the dynamic character of competitiveness, stating that it is the ability to derive
faster (than other countries) and greater benets from one’s own and foreign produc‑
tion factors, which translates into a more dynamic growth of the overall welfare.
A number of dierent statistical‑econometric methods are used by economists
to assess the competitiveness of selected economies (Startiene & Remeikiene 2014).
In this article, Balassa’s method of analysing revealed comparative advantages
(RCA) (1965, 1989) was applied to evaluate the real competitiveness of the Baltic
States in contemporary trade in high‑technology goods. In particular, Balassa’s
original logarithmical RCA formula was used, as follows:
ln
ij i
i
j
XX
RCA XX
= ÷
(1)
where:
–
the revealed comparative advantages index of a given country in the i goods
category
–exports of the i goods category from the given country to the j country or cate‑
gory of j countries
–
total exports from the given country to the j country or category of j coun‑
tries
–global total exports of the i goods category
–global total exports
The above form of Balassa’s formula allows for the symmetry of both positive
and negative RCAi values in the range around 0 to be maintained, thereby facili‑
tating their interpretation (Falkowski 2017a). One can only speak of the presence
of a relative trade advantage for a given goods category when the value of this in‑
dex for it is greater than zero (RCAi > 0).
In addition, in order to further analyze the international competitiveness of Es‑
tonia, Latvia and Lithuania in the eld of high‑technology goods, the OECD clas‑
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31Competitiveness of the Baltic States…
sication of basic goods categories based on their technological advancement was
used (OECD 2011; Hatzichronoglou 1997). Under this classication, OECD has dis‑
tinguished four basic categories of goods, i.e. high‑technology, medium‑high‑tech‑
nology, medium‑low‑technology and low‑technology goods. Furthermore, with‑
in the category of high‑technology goods, which is crucial for this article, the
OECD has included the following subcategories: aircraft and spacecraft; medi‑
cal, precision and optical instruments; oce, accounting and computing machin‑
ery; pharmaceuticals; radio, TV and communications equipment. In the empirical
part of this article, using the relevant RCA values as calculated, the competitive‑
ness of the three Baltic countries is present with respect to both the high‑technol‑
ogy goods categories against the background of the other goods categories under
the OECD classication, as well as the dierent subcategories of goods from the
high‑technology goods category.
All necessary statistical data used to analyze the subject matter comes from
the United Nations Commodity Trade Statistics Database.
4. Empirical research results
When analysing the competitiveness of individual Baltic countries in international
trade in high‑technology goods, it is worthwhile to rst look at the export struc‑
ture of Estonia, Lithuania and Latvia in terms of individual categories of goods,
according to the OECD classication based on their technological advancement
(Table 1).
Exports from all the Baltic States are dominated by low‑technology goods,
which in 2014 accounted for 36.18% (Latvia), 29.13% (Lithuania), and 26.29% (Es‑
tonia) of their total exports. At the same time however, the value of low‑technol‑
ogy goods in the export value of each of the Baltic countries markedly decreased
over the analyzed period of 1997–2014. The biggest drop was recorded by Latvia
(–30.89 pp; from 67.07% in 1997 to 36.18% in 2014), followed by Estonia (–16.61
pp; from 42.90% in 1997 to 26.29% in 2014), and then by Lithuania (–11.21 pp;
from 40.34% in 1997 to 29.13% in 2014).
On the other hand, when we look at the importance of exports of hi‑technol‑
ogy goods, comprising both the high‑technology and medium‑high‑technology
categories under the OECD classication, Estonia turns out to be the leader in this
respect, with exports of high‑technology goods accounting for 15.66% and medi‑
um‑high‑technology goods – for 24.97% of the total export value in 2014 (in total,
40.63% of Estonian exports). The relatively high importance of high‑technology
and medium‑high‑technology goods in Lithuania’s export structure, albeit signif‑
icantly lower than in Estonia, can also be noted (in total, 33.52% in 2014), as well
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32 Krzysztof Falkowski
as in Latvia (28.81% in 2014). However, as far as the share of high‑technology
goods only in total exports in the Baltic countries is concerned, in 2014 it was very
similar for Estonia and Latvia (15.66% and 14.18%, respectively) while for Lithu‑
ania it was much lower, amounting to just 7.54%.
What’s more, and what needs to be stressed in this context, is that the share
of high‑technology goods in Latvian exports in the analyzed period has signi‑
cantly increased. While in 1997 it stood at just 4.98%, in 2014 it reached as much
as 14.18% (a nearly threefold rise). Unlike for Latvia, the shares of high‑technol‑
ogy and medium‑high‑technology goods for Estonia and Lithuania, despite some
uctuations, remained relatively stable over the entire analysed period.
Table 1. Share of high‑technology goods category in Estonian, Latvian and Lithuanian ex‑
ports against other categories of goods according to the OECD classication in selected years
between 1997–2014
Category of goods Share in total exports (%)
1997 2002 2006 2010 2014
Estonia
High‑technology 13.41 15.56 14 .74 10. 20 15.66
Medium‑high‑technology 21.24 19.09 21.15 23.93 24.97
Medium‑low‑technology 13.50 16.30 26.50 26.43 2 0.79
Low‑technology 42.90 41.9 9 26.98 27.44 26.29
Other 8.96 7. 07 10.63 12.00 12.28
Latvia
High‑technology 4.98 4.79 7. 01 11 .17 14 .18
Medium‑high‑technology 14. 37 10.12 15.93 15.86 14.63
Medium‑low‑technology 9.8 4 16.12 21.38 19.15 18.04
Low‑technology 67.07 63.97 44.97 37.77 36.18
Other 3.74 5.01 10.71 16.05 16.9 8
Lithuania
High‑technology 8.13 7.2 5 6.85 5.88 7. 5 4
Medium‑high‑technology 23.16 19.38 23.50 24.53 25.98
Medium‑low‑technology 20.08 31.15 32.98 31.30 26.13
Low‑technology 40.34 35.90 29.59 27.77 29.13
Other 8.29 6.32 7.09 10.53 11.21
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
However, looking at the net trade in high‑technology goods in the Baltic coun‑
tries in the years 1997–2014, one can see that for all three of them the balance was
negative in this regard (Figure 1). Thus, despite the above‑mentioned growing share
of high‑technology goods in total exports in Latvia and Estonia, the value of im‑
ports of these goods year‑on‑year in all Baltic States was signicantly higher than
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33Competitiveness of the Baltic States…
the value of relevant exports. A particularly negative tendency of a rapidly rising
negative balance in this regard occurred in 2001–2007, which was mainly connect‑
ed with the liberalization of trade rules in the Baltic States due to their accession
to the World Trade Organization (Estonia and Latvia joined in 1999, and Lithuania
in 2001), their forthcoming accession to the European Union (2004) and their dy‑
namic economic development observed in the early 2000s in all of them. By far the
worst in this respect were the years 2007 and 2008, when the negative imbalance
in foreign trade in high‑technology goods was the largest in all three countries over
the analysed period. However, when these three countries are compared among
themselves in this regard, it is noticeable that Estonia’s trade decit in high‑tech‑
nology goods was the smallest, while Lithuania’s was the largest (Figure 1).
Figure 1. Net balance of trade in high‑technology goods (Export minus Import) for Estonia,
Latvia and Lithuania in 1997‑2014 (USD million)
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
Furthermore, analysis of the data concerning long‑term comparative
advantages in exports of the Baltic States in 1997–2014, according to the OECD
classification of goods categories based on their technological advancement
(Figures 2–4), clearly shows that all three Baltic States have a very similar
competitive profile. They all enjoy competitive advantages in the same two of the
four goods categories, i.e. in the low‑technology and medium‑low‑technology
goods. Also, in exports to international markets all of these countries are the most
competitive in the low‑technology goods category in general (the most
competitive goods subcategory traditionally being Wood, pulp, paper, paper
products, printing and publishing (Estonia and Latvia) and Food products,
beverages and tobacco (Lithuania)). However, it is also worth pointing out that
only in the case of Lithuania, in the selected years of the analyzed period, that is
between 2001–2006, in 2008, and between 2010–2012, the highest
competitiveness in foreign trade was recorded in the category of medium‑low‑
technology goods, mainly due to its high competitiveness in the Coke, refined
petroleum products and nuclear fuel subcategory.
Unfortunately, what is particularly important from the point of view of this
article, the Baltic States do not have any comparative advantages in the high‑
technology goods trade. The RCA values for this category of goods, with the
exception of 2000–2001 for Estonia, remained below zero during the entire
analyzed period. It should be noted, however, that in this regard Estonia fared
‑1600
‑1400
‑1200
‑1000
‑800
‑600
‑400
‑200
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Estonia Latvia Lithuania
Figure 1. Net balance of trade in high‑technology goods (Export minus Import) for Estonia,
Latvia and Lithuania in 1997–2014 (USD million)
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
Furthermore, analysis of the data concerning long‑term comparative advan‑
tages in exports of the Baltic States in 1997–2014, according to the OECD clas‑
sication of goods categories based on their technological advancement (Figures
2–4), clearly shows that all three Baltic States have a very similar competitive
prole. They all enjoy competitive advantages in the same two of the four goods
categories, i.e. in the low‑technology and medium‑low‑technology goods. Also,
in exports to international markets all of these countries are the most competi‑
tive in the low‑technology goods category in general (the most competitive goods
subcategory traditionally being Wood, pulp, paper, paper products, printing and
publishing (Estonia and Latvia) and Food products, beverages and tobacco (Lith‑
uania)). However, it is also worth pointing out that only in the case of Lithuania,
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34 Krzysztof Falkowski
in the selected years of the analyzed period, that is between 2001–2006, in 2008,
and between 2010–2012, the highest competitiveness in foreign trade was recorded
in the category of medium‑low‑technology goods, mainly due to its high competi‑
tiveness in the Coke, rened petroleum products and nuclear fuel subcategory.
Unfortunately, what is particularly important from the point of view of this
article, the Baltic States do not have any comparative advantages in the high‑tech‑
nology goods trade. The RCA values for this category of goods, with the exception
of 2000–2001 for Estonia, remained below zero during the entire analyzed period.
It should be noted, however, that in this regard Estonia fared relatively the best, that
is during the entire period its RCA values, although negative, were signicantly
better than those of Latvia and Lithuania (except for 2009). Also a clear improve‑
ment of RCAs for high‑technology goods in Latvia should be emphasised (a very
signicant reduction in their negative values over the years 1997–2014), which most
clearly demonstrates the gradual improvement of the country’s competitiveness
in this category of goods. And secondly, Lithuania is a kind of outsider among the
Baltic States in terms of competitiveness (or, in fact, the total lack thereof) in the
area of trade in high‑technology goods. Not only did the country have the lowest
RCA values in this area among all Baltic States starting from 2006, but also there
was virtually no real improvement in this respect over that time.
relatively the best, that is during the entire period its RCA values, although
negative, were significantly better than those of Latvia and Lithuania (except for
2009). Also a clear improvement of RCAs for high‑technology goods in Latvia
should be emphasised (a very significant reduction in their negative values over
the years 1997–2014), which most clearly demonstrates the gradual improvement
of the country's competitiveness in this category of goods. And secondly,
Lithuania is a kind of outsider among the Baltic States in terms of competitiveness
(or, in fact, the total lack thereof) in the area of trade in high‑technology goods.
Not only did the country have the lowest RCA values in this area among all Baltic
States starting from 2006, but also there was virtually no real improvement in this
respect over that time.
Figure 2. Revealed comparative advantages (RCA) in Estonia's exports within the basic
categories of goods according to the OECD classification in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
‑1,5
‑1
‑0,5
0
0,5
1
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
High‑technology Medium‑high‑technology
Medium‑low‑technology Low‑technology
Figure 2. Revealed comparative advantages (RCA) in Estonia’s exports within the basic cate‑
gories of goods according to the OECD classication in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
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35Competitiveness of the Baltic States…
Figure 3. Revealed comparative advantages (RCA) in Latvia's exports within the basic
categories of goods according to the OECD classification in 1997‑2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
‑2
‑1,5
‑1
‑0,5
0
0,5
1
1,5
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
High‑technology Medium‑high‑technology
Medium‑low‑technology Low‑technology
‑1,5
‑1
‑0,5
0
0,5
1
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
High‑technology Medium‑high‑technology
Medium‑low‑technology Low‑technology
Figure 3. Revealed comparative advantages (RCA) in Latvia’s exports within the basic catego‑
ries of goods according to the OECD classication in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
Figure 3. Revealed comparative advantages (RCA) in Latvia's exports within the basic
categories of goods according to the OECD classification in 1997‑2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
‑2
‑1,5
‑1
‑0,5
0
0,5
1
1,5
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
High‑technology Medium‑high‑technology
Medium‑low‑technology Low‑technology
‑1,5
‑1
‑0,5
0
0,5
1
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
High‑technology Medium‑high‑technology
Medium‑low‑technology Low‑technology
Figure 4. Revealed comparative advantages in Lithuania’s exports within the basic categories
of goods according to the OECD classication in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
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36 Krzysztof Falkowski
Figure 4. Revealed comparative advantages in Lithuania's exports within the basic categories
of goods according to the OECD classification in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
To assess the competitiveness of the individual Baltic States in the
international trade in high‑technology goods, one should undoubtedly look closer
at the structure and dynamics of the RCA values for specific subcategories of
goods from the high‑technology goods category, based on the OECD
classification. It is clear from the above analysis that, although Estonia and Latvia
do not have any comparative advantages in international trade in the most
technologically advanced goods category in general, they do possess some
comparative advantages in several subcategories of goods from this category
(Figures 5–6). In the case of Estonia, comparative advantages were recorded in
the Radio, TV and communications equipment subcategory (in 2011–2014, the
value of Estonian exports of this subcategory exceeded USD 2 billion, which was
the best result of all subcategories of foreign trade in that country according to the
OECD classification), and in the case of Latvia comparative advantages were
recorded in the Pharmaceuticals subcategory. It is worth noting that in 2014, for
the first time in the analyzed period, Latvia also possessed comparative
advantages in the Radio, TV and communication equipment subcategory (RCA
value = 0.034), while the export value of those goods reached $ 1.16 billion,
almost treble the value of Latvian exports of pharmaceuticals.
‑6
‑5
‑4
‑3
‑2
‑1
0
1
2
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Aircraft and
spacecraft
Medical, precision
and optical
instruments
Office, accounting
and computing
machinery
Pharmaceuticals
Radio, TV and
communciations
equipment
Figure 5. Revealed comparative advantages in Estonia’s exports within high‑technology goods
according to the OECD classication in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
Figure 5. Revealed comparative advantages in Estonia's exports within high‑technology goods
according to the OECD classification in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
Figure 6. Revealed comparative advantages in Latvia's exports within high‑technology goods
according to the OECD classification in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
On the other hand, with respect to Lithuania it should be emphasized that
during the entire analyzed period the country did not have any comparative
advantages in foreign trade in any of the five subcategories of goods from the
high‑technology goods category according to the OECD classification (Figure 7).
Relatively the best (but still negative) RCA values for these goods subcategories
were recorded by Lithuania in the subcategories of Medical, precision and optical
instruments (in 2014, RCA = –0.41) and Pharmaceuticals (in 2014, RCA = –
0.42).
‑5
‑4
‑3
‑2
‑1
0
1
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Aircraft and
spacecraft
Medical, precision
and optical
instruments
Office, accounting
and computing
machinery
Pharmaceuticals
Radio, TV and
communciations
equipment
Figure 6. Revealed comparative advantages in Latvia’s exports within high‑technology goods
according to the OECD classication in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
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37Competitiveness of the Baltic States…
To assess the competitiveness of the individual Baltic States in the interna‑
tional trade in high‑technology goods, one should undoubtedly look closer at the
structure and dynamics of the RCA values for specic subcategories of goods
from the high‑technology goods category, based on the OECD classication.
It is clear from the above analysis that, although Estonia and Latvia do not have
any comparative advantages in international trade in the most technologically ad‑
vanced goods category in general, they do possess some comparative advantages
in several subcategories of goods from this category (Figures 5–6). In the case
of Estonia, comparative advantages were recorded in the Radio, TV and commu‑
nications equipment subcategory (in 2011–2014, the value of Estonian exports
of this subcategory exceeded USD 2 billion, which was the best result of all sub‑
categories of foreign trade in that country according to the OECD classication),
and in the case of Latvia comparative advantages were recorded in the Phar‑
maceuticals subcategory. It is worth noting that in 2014, for the rst time in the
analyzed period, Latvia also possessed comparative advantages in the Radio, TV
and communication equipment subcategory (RCA value = 0.034), while the ex‑
port value of those goods reached $ 1.16 billion, almost treble the value of Latvi‑
an exports of pharmaceuticals.
Figure 7. Revealed comparative advantages in Lithuania's exports within high‑technology
goods according to the OECD classification in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
If we look at the most competitive goods in the high‑technology goods
category in the foreign trade of the Baltic States in 2014, i.e. those with the highest
RCA values and with the highest share in total exports, the number of them turns
out to be the largest for Estonia and the smallest for Lithuania. The most
competitive high‑technology goods in the case of Estonia are – Apparatus for
carrier‑cu (RCA = 3.95; export share 3.16%; export value 554.5 million USD);
Elect apparatus for line (2.03, 4.91%, 861.8 million USD, respectively); Parts of
line telephone / telegraph equipment, nes (1.30, 2.55%, 448.3 million USD,
respectively); Transmit‑receive apparatus for radio, TV, etc. (0.92, 0.56%, 98.5
million USD, respectively). What is noteworthy is that all of them are from the
the Radio, TV and communcation equipment subcategory.
In the case of Latvia, the most competitive goods (commodities) in the
high‑technology goods category in 2014 were: Colour Television Receivers (RCA
= 1.56; exports share 1.88%; exports value 255.9 million USD), Transmit‑receive
apparatus for radio Electrodes for line (0.64, 1.23%, 167.3 million USD,
respectively), and Medicaments nes, in dosage (0.44, 2.34%, 318.5 million USD,
respectively).
‑3
‑2,5
‑2
‑1,5
‑1
‑0,5
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Aircraft and
spacecraft
Medical, precision
and optical
instruments
Office, accounting
and computing
machinery
Pharmaceuticals
Radio, TV and
communciations
equipment
Figure 7. Revealed comparative advantages in Lithuania’s exports within high‑technology
goods according to the OECD classication in 1997–2014
Source: Own elaboration based on data from the United Nations Commodity Trade Statistics
Database.
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38 Krzysztof Falkowski
On the other hand, with respect to Lithuania it should be emphasized that dur‑
ing the entire analyzed period the country did not have any comparative advantages
in foreign trade in any of the ve subcategories of goods from the high‑technolo‑
gy goods category according to the OECD classication (Figure 7). Relatively the
best (but still negative) RCA values for these goods subcategories were recorded
by Lithuania in the subcategories of Medical, precision and optical instruments
(in 2014, RCA = –0.41) and Pharmaceuticals (in 2014, RCA = –0.42).
If we look at the most competitive goods in the high‑technology goods cat‑
egory in the foreign trade of the Baltic States in 2014, i.e. those with the highest
RCA values and with the highest share in total exports, the number of them turns
out to be the largest for Estonia and the smallest for Lithuania. The most com‑
petitive high‑technology goods in the case of Estonia are – Apparatus for carri‑
er‑cu (RCA = 3.95; export share 3.16%; export value 554.5 million USD); Elect
apparatus for line (2.03, 4.91%, 861.8 million USD, respectively); Parts of line
telephone / telegraph equipment, nes (1.30, 2.55%, 448.3 million USD, respec‑
tively); Transmit‑receive apparatus for radio, TV, etc. (0.92, 0.56%, 98.5 million
USD, respectively). What is noteworthy is that all of them are from the the Radio,
TV and communcation equipment subcategory.
In the case of Latvia, the most competitive goods (commodities) in the
high‑technology goods category in 2014 were: Colour Television Receivers
(RCA = 1.56; exports share 1.88%; exports value 255.9 million USD), Transmit‑re‑
ceive apparatus for radio Electrodes for line (0.64, 1.23%, 167.3 million USD,
respectively), and Medicaments nes, in dosage (0.44, 2.34%, 318.5 million USD,
respectively).
As for Lithuania, although the country does not possess any comparative ad‑
vantages either in the high‑technology goods category in general or in individual
subcategories within this goods category, it did have, albeit small, advantages at the
level of specic goods (commodities) in 2014. There were: Instruments, appliances
for medical, science, nes (RCA = 0.97; export share 0.69%; expor t value 222.8 mil‑
lion USD), Step and repeat aligners (0.81, 0.31%, 100.1 million USD, respectively);
and Colour television receivers (respectively: 0.02, 0.4%, 130.9 million USD).
5. Conclusions
The subject‑matter of this article has been an in‑depth analysis of the competitive‑
ness of the economies of the three Baltic States (Estonia, Latvia and Lithuania)
in international high‑technology goods trade.
It goes without saying that strong international competitiveness in high‑tech‑
nology goods is particularly important for small and open economies, as it not
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39Competitiveness of the Baltic States…
only gives them the opportunity to improve their place in the international di‑
vision of labour, and thus achieve faster economic growth, but it can also cre‑
ate an eective buer against unpredictable external price shocks of labour‑ and
capital‑intensive goods. Perfect examples of such small economies which are
particularly vulnerable to all cyclical uctuations are Estonia, Latvia and Lith‑
uania, as evidenced by how deeply they were aected by the economic crisis
of 2009, which ultimately put an end to the then‑dynamic economic develop‑
ment of these so‑called ‘Baltic tigers’. Unfortunately, none of the three Baltic
States has so far joined the ranks of major exporters of high‑technology goods
in the world, which is partly because of their low international competitiveness
in trade in these goods.
The analysis carried out in this paper clearly shows that all three Baltic States
have a very similar competitive prole. On the one hand, all of them possess com‑
parative advantages in exports in the low‑technology and medium‑low‑technol‑
ogy goods categories (according to the OECD classication of goods categories
based on their technological intensity). On the other, none of them has any com‑
parative advantages in the high‑technology goods category, as evidenced by the
complete lack of such (in the case of Lithuania) or very small (Estonia and Latvia)
comparative advantages in trade in individual goods within the high‑technology
goods category.
Out of the three Baltic States, Estonia was found to be the most competitive
country in terms of international trade in high‑technology goods. At the other end
of the spectrum was Lithuania, whose RCA values in this category were not only
the lowest, but what’s more, no improvement in this regard could be observed in the
analyzed period. Unlike Lithuania, Latvia has seen a boost in the value of RCA for
high‑technology goods. This testies to the gradual improvement of the country’s
competitiveness in trade in international markets within this group of goods.
The improved innovativeness observed in recent years in the economies of the
Baltic States (according to the most recent Global Innovation Index in 2016, Es‑
tonia ranks 24th, Latvia – 34th, and Lithuania – 36th worldwide (Dutta et al. 2016),
up by 7, 16 and 11 places, respectively, as compared to the same report from 2007)
gives hope for an improvement of their international competitiveness in high‑tech‑
nology trade, especially in the context of the policies they have consistently pursued
in this area and the growing innovativeness of their private companies, especially
from the small and medium‑sized enterprises sector (EC 2016). Among the main
recommendations for potentially strengthening the Baltic States’ competitiveness
in international high‑technology goods trade are: (i) to support high‑tech compa‑
nies, including through the creation of favourable conditions for R & D invest‑
ment; (ii) to increase the nancing of high‑tech start‑ups from the state budget; (iii)
to foster cooperation between technical universities and businesses to eectively
implement new innovative solutions in the economy; (iv) to support and develop
high esteem for science and engineering in their societies; (v) to make eective
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40 Krzysztof Falkowski
use of the existing EU pro‑innovation programs and instruments for the develop‑
ment of high‑tech industries in the Member States.
However, while taking actions to improve the competitiveness of the Bal‑
tic States’ economies in the area of high‑technology goods trade is important,
it is also very important to maintain their existing comparative advantages in the
trade of medium‑low‑technology and low‑technology goods.
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Streszczenie
KONKURENCYJNOŚĆ KRAJÓW BAŁTYCKICH
W MIĘDZYNARODOWYM HANDLU TOWARAMI HIGH‑TECH
Celem artykułu jest ocena poziomu międzynarodowej konkurencyjności krajów bałtyckich
(Estonii, Łotwy, Litwy) w handlu towarami o wysokim stopniu zaawansowania technolo‑
gicznego. W tym celu zastosowano metodę analizy ujawnionych przewag komparatywnych
B. Balassy. Z dokonanej pogłębionej analizy kształtowania się ujawnionych przewag kom‑
paratywnych (RCA) w eksporcie poszczególnych krajów bałtyckich w latach 1997–2014,
wynika, iż charakteryzuje je stosunkowo niski poziom międzynarodowej konkurencyjności
w tym zakresie, czego bezpośrednią konsekwencją jest rosnący ujemny bilans handlowy
w handlu towarami high‑tech. Dowiedziono, iż w analizowanym okresie Litwa nie posia‑
dała żadnych przewag komparatywnych w handlu towarami z grupy towarów high‑tech,
zaś liczba tych przewag w odniesieniu do Estonii oraz Łotwy była stosunkowo niewielka.
Niemniej jednak spośród trzech krajów bałtyckich najwyższą konkurencyjnością w tym
zakresie charakteryzuje się Estonia, aczkolwiek w przypadku Łotwy widoczny jest progres
w tym zakresie w ostatnich latach. Swoistym outsiderem zaś jest Litwa, która nie dość,
iż charakteryzuje się najniższymi wartościami wskaźnika RCA, to dodatkowo w analizo‑
wanym okresie nie odnotowała żadnej poprawy w tym zakresie.
Słowa kluczowe: konkurencyjność międzynarodowa, ujawnione przewagi komparatywne
(RCA), towary high‑tech, kraje bałtyckie, Estonia, Litwa, Łotwa
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