The Role of Productivity in Increasing Latvian Competitiveness

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. 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. Increasing entrepreneurs' motivation is a major structural change in policy making. Economic structural transformation process is largely dependent on the quality of the institutional framework (legislation, state aid and economic and political institutions), 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. Results of the analysis highlighted the potential economic policies to improve productivity on the micro, sectoral and macro level. One of the main conditions for a balanced development of the economics is the ability to reduce the productivity gap, achieving the most rapid productivity convergence with the EU average, while maintaining high wage increase rates. This can be done either by attracting additional investments, which is currently problematic considering investors' uncertainty, or to increase total factor productivity through structural reforms, improving innovation capacity, efficient use of resources and developing the high-tech industry.