Lithuania’s Competitive Advantages in the European and World Economic Context

According to a survey on the world’s freest economies (released in January 2006 by the Heritage Foundation and the Wall Street Journal), among 160 different countries of the world, Lithuania takes the 23rd place. Lithuania’s position seems quite high; on the other hand, taking into consideration the fact that the list includes African and Latin American countries, Lithuania must strive yet more to be able to catch up with the developed economies. As Dr. Guoda Steponavièienë, the vice-president of the Lithuanian Free Market Institute (LFMI), pointed out, Lithuania faces enormous investment and talent competition in Europe and the rest of the world. However, the country has some considerable economic advantages and the potential for further development.

In her report, during a discussion organized by the LFMI, Dr. Steponavièienë commented upon Lithuania’s economic indexes comparing them with those of other European countries, particularly those with similar historical-political-cultural background. Here is a short overview of Lithuania’s competitive advantages according to the main economic criteria, where the highest possible evaluation is 1, the lowest 5.

Trade openness. Since it is dictated by the EU foreign trade policy, it is not surprising that all the EU countries have the same rating – 2. Higher positions are taken by Honking, Singapore, Chile, and Botswana. So there is little Lithuania can change on its own here.

Fiscal burden. Fiscal burden in Lithuania is evaluated by 2.4, the same as Poland, which takes the 41st position among other countries. In Latvia, which takes the 39th place, the fiscal burden is evaluated 2.3. Meanwhile in Estonia and Slovakia, it is rated only 2.0. The fiscal burden index in Lithuania can be improved by cutting taxes and reducing budget spending.

Government intervention. The extent of government intervention in Lithuania has one of the best evaluations – 2. Except for Georgia and Romania (which were evaluated 1.5), there is no higher grade in Europe.

Monetary policy. When it comes to monetary policy, Lithuania has the highest possible evaluation – 1 (the same as Estonia and Poland). Meanwhile Latvia, with its high inflation rates, has got a lower grade - 2. In Lithuania, inflation has a tendency to rise as well, but it should be regarded as a natural process caused by price convergence after joining the EU; moreover, the general price level has been greatly influenced by the increasing oil prices.

Capital flows and foreign investments. Lithuania got 2, Estonia – 1, Latvia – 2, Poland – 3. Many other EU countries received the highest ratings. Evidently, for Lithuania there is still some effort to be put in achieving greater economic freedom.

Banking and finance. The index of banking and finance in Lithuania is 1, Estonia – 1, Poland – 2. Lithuania has the best possible score.

Wages and prices. As for the regulation of wages and prices, Lithuania, as well as Latvia, Estonia, and Poland, was given 2. The only European country which got higher evaluation was Iceland. The main limitations common in all Europe are regulated energy and transport prices and a fixed minimum wage.

All in all, the evaluations concerning Lithuania’s economic freedom are quite good. Monetary policy, banking and finance system were given the highest ratings (1). The indexes of trade openness, government intervention, capital flows and foreign investment, as well as the regulation of wages and prices in Lithuania are also high (2). On the other hand, improvements in the country’s fiscal system (2.5) as well as law and judicial system (which were given a comparatively low score – 3) should be made in order to achieve a yet greater economic freedom.

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