Lithuanian Export Competitiveness: Comparison with other Baltic States

For small economies, as the case of Lithuania, export is substantial in sustaining growth and vitality. Export development has contributed significantly in terms of capital inflows, employment, expansion of industry and widening the production base. Export has also allowed domestic industries to achieve some economies of scale, which otherwise would not have been possible due to the limited domestic market size. Nowadays the results, changes and dynamics of foreign trade are best indices to evaluate capabilities of national companies to compete in open global economy. Lithuanian industry restructuring process, forced by global market competition and economic integration to European Union, presented the market failures and imperfections in the industry of Lithuania, especially in the areas of management, progress of science and technique, information technologies and communications. Lithuanian industry does not have higher technologies in such level as developed countries. The significance of low value-added industries in Lithuania is obvious, nevertheless, performance of relatively high-value added productions is important for improving export development in the future. In considering results of restructuring of industry, the most common approach is to evaluate the degree of export specialization of the country and main changes of export volumes. One of the most applied tools to measure the export specialization of industry has been the revealed comparative advantage index (RCA), suggested by Balassa (1965), which represents foreign trade relative prices and prevailing factor as well product market distortions. Large differences in country sizes can cause problems when applying the RCA across countries, for instance, if export of particular commodity forms a very large share of total domestic export, but forms a very small component of total world export, extremely high indicator values will be recorded. Such modified indices are presented in modern theories. This paper presents Lithuanian export competitiveness in 2000-2007 with trade based modified indices of revealed comparative advantage. Lithuanian export competitiveness is also compared with other small Baltic states: Latvia and Estonia. Results of RCA study reveal competitive advantage in several commodities. This paper analyses the changes in the pattern of Baltic States export specialization and provides an analysis of the shifting export specialization at product category level and links this analysis to the export potential. In the presence of growing trade liberalization, competitive pressures, and the changing structure of world demand, it is important to reassess the factors that influence the export competitiveness.