How Is the Crisis Affecting the Competitiveness of Countries?: The Case of the Baltic Countries and the Global Crisis

How Is the Crisis Affecting the Competitiveness of Countries?: The Case of the Baltic Countries and the Global Crisis

Anna Matysek-Jędrych (Poznan University of Economics, Poland)
DOI: 10.4018/978-1-4666-6054-0.ch006

Abstract

The chapter focuses on the relation between the economic crisis and competitiveness on a national and regional dimension. The Baltic countries (Estonia, Latvia, and Lithuania) have experienced one of the biggest GDP contractions during the Global Crisis so far. Hence, identifying and assessing changes in the relative competitiveness as a consequence of the economic downturn has sparked many interests. The international competitiveness and economic crisis intermingle with one another. The international cases selected for the purpose of this research (Estonia, Latvia, and Lithuania) were to demonstrate clear and unquestionable evidence that crisis affects the international competitiveness of countries. One may believe that such a deep and painful financial and economic crisis as the current one—in the case of the Baltics—has to leave some permanent and explicit traces on a country's competitiveness. Thus, the results of this research may surprise a little. It may be generally concluded that a short-term crisis, even if severe, does not have a negative long-term influence on the international competitiveness as long as a proper anti-crisis policy is implemented. Sharing a number of structural, institutional, and performance features caused the crisis to undermine the competitiveness of the Baltic States in a similar manner (through macroeconomic stability channel). This in turn caused the applying of an analogue crisis management policy with the fundamental tool of fiscal policy tightening by an increased downward flexibility of wages and prices.
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Background

The assessment of the crisis impact on competitiveness should be preceded by a clear indication of what is meant by ‘competitiveness’ in this paper, especially as there is no unique definition of this term and the concept still seems to be elusive. The understanding of it depends among other things on the level of analysis (whether the macro-level, mezzo- or micro- one). Taking into account different approaches toward competitiveness (Fajnzylber, 1988; Maarten de Vet, 1993; Fanelli & Medhora, 2002; Garelli, 2006 just to mention a few), we can broadly define it as the ability of an element of a general environment (a company, a cluster, a region, a country or a group of countries, etc.) to operate efficiently and productively in relation to other similar elements of this environment.

The question of how to measure this ability still remains, however, under investigation. The World Economic Forum (WEF, 2013) uses for example the annual changes in GDP per capita as such a measure, since a “country’s competitiveness is the ability of a national economy to achieve sustained rates of economic growth, measured by the annual changes in GDP per capita”. The official definition of the OECD of a nation's competitiveness is as follows (Maarten de Vet, 1993): “the degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long term”. However, the statistical term used by the OECD in its database states that “competitiveness is a measure of a country’s advantage or disadvantage in selling its products in international markets”.

The assessment of a country’s competitiveness can be conducted by the means of two different approaches (Kowalski & Pietrzykowski, 2010). The first relates to the comparative dynamic analysis of economic indicators (uniform measures of performance), identified in economic literature as the proxies of the country’s competitiveness (Durand & Giorno, 1987; Turner & Van’tdack, 1993; Fagerberg, Knell & Srholec, 2004). These indicators characterize changes in countries’:

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