OECD Economic Surveys: Latvia 2017
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OECD Economic Surveys: Latvia 2017

Latvia’s economy has grown robustly in recent years on the back of a strong track record in implementing structural reforms, despite a challenging international environment. Rising wages have supported household consumption. After a severe setback in 2008-09, catch-up with higher income OECD countries may have resumed. Government finances are solid and financial market confidence in Latvia is strong. Private sector indebtedness is now lower than in many OECD economies. Export performance, including diversification of products and destinations, is improving, but Latvia’s participation in global value chains is modest. Latvia’s exports still rely heavily on low value-added, natural resource intensive products, reflecting in part skills shortages and weak innovation. Unemployment remains high, although it has fallen. Many young Latvians emigrate. Informal economic activity is still widespread.
High long-term unemployment, weak social safety nets and high labour taxes for workers on low pay contribute to widespread poverty. Many low-income households are inadequately housed. High out-of-pocket payments limit access of low-income households to health services. Improving access to housing, health care, education and training would improve economic opportunities for low-income households and requires additional government spending.

SPECIAL FEATURES : MOVING UP THE GLOBAL VALUE CHAIN; ECONOMIC AND SOCIAL INFRASTRUCTURE

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Moving up the global value chain You do not have access to this content

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Stronger integration in global value chains (GVCs) offers opportunities for boosting productivity through knowledge transfer and intensive use of technologically advanced inputs. It also enables Latvia to diversify exports into high value added goods and services. Latvia’s participation in GVCs lags behind its Baltic and Central European peers. It also draws less value added from GVCs compared to many OECD economies. Nevertheless, participation in GVCs boosts the productivity of Latvian firms and enables them to increase employment and wages. Strong skills, high innovation capabilities and efficient resource allocation are essential for Latvian firms to engage in more knowledge intensive activities within GVCs. Improving access to higher education, promoting innovation co-operation between Latvian firms and foreign research institutes, reducing the large informal economy and establishing an effective judiciary and insolvency regime would unlock inclusive productivity growth through stronger integration in GVCs.

 
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