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International Internet Magazine. Baltic States news & analytics Sunday, 26.03.2017, 10:16

The economic development of the Baltic Sea Region - what major indicators tell us

Hiltgunt Fanning, Professor University of Applied Sciences Stralsund, German. Baltic Rim Economies, http://www.utu.fi, 17.03.2017.Print version
Early in the 19990s, when the Berlin Wall had come down, enthusiasm about the perspectives for the future was unbridled in the Baltic Rim countries. Old ties were strengthened, new plans made, networks created, projects initiated, and numerous organisations from governmental to local levels founded within just a few years.

And, indeed, for more than fifteen years, the Baltic Sea Region developed at high speed, the Baltic states (Estonia, Latvia, Lithuania) and Poland joined the European Union, and the Baltic Sea Region was deemed “one of the most dynamic economic areas of Europe.”


At the same time, however, the region’s prosperity remained below peer regions; and analysts repeatedly pointed at performance imbalances between member countries and improvement needed regarding different aspects of economic performance, such as GDP, competitiveness, digitalization, employment, inflation, sustainability, or wealth.


For gaining a clearer picture of the BSR’s economic performance since the mid-2000s, two types of data were considered: firstly, the traditional macro-economic indicatorsof GDP, GDP per capita and FDI, and secondly, more modern indices/rankings, viz. the Global Competitiveness Index, the Ease of Doing Business Index, the Economic Freedom Index, the European Innovation Scoreboard, the World Investment Report, the Global Cleantech Innovation Index, and the Networked Readiness Index.


GDP and GDP per capita

The below table lists the values of the 10 BSR states, the overall performance of the region, the values of the European Union and of the United States[1]

 

As can be seen, all Baltic Rim countries - except Russia - exhibit continuous growth; and in 2015 the BSR GDP per capita average exceeded the EU average. This good result loses its lustre, however, when compared with the US performance and a gap of about 50%.

But even within the BSR, the long-standing East-West divide is still present, although it has narrowed somewhat – in 2005, the GDP per capita average of Estonia, Latvia, Lithuania, Poland, and Russia amounted to 38% of that of Denmark, Finland, Germany, Norway and Sweden; and in 2015 it amounted to 46% (54% if one excludes Russia’s performance).



[1] All values were taken from the CIA World Factbook




Competitiveness

The Global Competitiveness Indexcompiled and published by the WORLD ECONOMIC FORUM is a cross-country benchmarking analysis of the factors and institutions that are perceived as determining long-term growth and prosperity.


While in 2005,four BSR countries (Denmark, Finland, Germany, and Sweden) made it into the Top 10 group (with Norway on rank 12 being close), whereas the positions of Estonia (25), Latvia (36), Lithuania (40), Poland (48) and Russia (62) were far behind – with a BSR average of 24; in 2016, it was Germany, Lithuania, Norway and Poland that had improved their performance, whereas all other BSR member states had lost ground, with the BSR average being 22.5, a very modest improvement. 


Ease of Doing Business

The Ease of Doing Business Index compiled by the WORLD BANK ranks economies regarding ten factors that contribute to a business-friendly environment conducive to the starting and operation of local firms., such as starting a business, obtaining construction permits or getting electricity.


The performance of the Baltic Sea Region in 2016 was as follows: Denmark – rank 3 (from 8 in 2005), Estonia – rank 12 (from 16 in 2005), Finland – rank 13 (stable compared with 2005), Germany – rank 17 (up in performance from 19 in 2005), Lithuania – rank 21( 15 in 2005), Latvia – rank 14 (26 in 2005), Norway – rank 6 (rank 5 in 2005), Poland – rank 24 (an impressive improvement from 54 in 2005), Russia – rank 40 (up from 79 in 2005), and Sweden – rank 9 (up from rank 14 in 2005). The BSR average moved up nearly 10 ranks from 25 in 2005 to 16 in 2016; and gaps between the best performers and countries on lower ranks are narrowing.

 

As can be seen, all Baltic Rim countries - except Russia - exhibit continuous growth; and in 2015 the BSR GDP per capita average exceeded the EU average. This good result loses its lustre, however, when compared with the US performance and a gap of about 50%. But even within the BSR, the long-standing East-West divide is still present, although it has narrowed somewhat – in 2005, the GDP per capita average of Estonia, Latvia, Lithuania, Poland, and Russia amounted to 38% of that of Denmark, Finland, Germany, Norway and Sweden; and in 2015 it amounted to 46% (54% if one excludes Russia’s performance).


Competitiveness

The Global Competitiveness Index compiled and published by the WORLD ECONOMIC FORUM is a cross-country benchmarking analysis of the factors and institutions that are perceived as determining long-term growth and prosperity.


While in 2005,four BSR countries (Denmark, Finland, Germany, and Sweden) made it into the Top 10 group (with Norway on rank 12 being close), whereas the positions of Estonia (25), Latvia (36), Lithuania (40), Poland (48) and Russia (62) were far behind – with a BSR average of 24; in 2016, it was Germany, Lithuania, Norway and Poland that had improved their performance, whereas all other BSR member states had lost ground, with the BSR average being 22.5, a very modest improvement. 


Ease of Doing Business

The Ease of Doing Business Index compiled by the WORLD BANK ranks economies regarding ten factors that contribute to a business-friendly environment conducive to the starting and operation of local firms, such as starting a business, obtaining construction permits or getting electricity. The performance of the Baltic Sea Region in 2016 was as follows: Denmark – rank 3 (from 8 in 2005), Estonia – rank 12 (from 16 in 2005), Finland – rank 13 (stable compared with 2005), Germany – rank 17 (up in performance from 19 in 2005), Lithuania – rank 21( 15 in 2005), Latvia – rank 14 (26 in 2005), Norway – rank 6 (rank 5 in 2005), Poland – rank 24 (an impressive improvement from 54 in 2005), Russia – rank 40 (up from 79 in 2005), and Sweden – rank 9 (up from rank 14 in 2005). The BSR average moved up nearly 10 ranks from 25 in 2005 to 16 in 2016; and gaps between the best performers and countries on lower ranks are narrowing. 


Economic Freedom

The Index of Economic Freedom measures the impact of liberty and free markets on economic freedom and progress. Factors considered include e.g. property rights, freedom from corruption, fiscal freedom, labour freedom and monetary freedom. 

In this index, only five BSR countries (Denmark, Estonia, Germany, Lithuania and Poland) have been able to improve their ranks compared with 2005; the ranks of Finland, Latvia, Norway, Russia and Sweden, on the other hand, deteriorated (Russia even fell back from rank 102 to rank 153; while Latvia only changed from rank 35 to 36). 


Innovation

For detecting trends regarding innovation, two sources were used – The European Innovation scoreboard/Innovation Union Scoreboard and the Global Cleantech 100 List.


The European Innovation scoreboard/Innovation Union Scoreboard(since 2011) is an instrument of the EUROPEAN COMMISSION, developed under the Lisbon Strategy to provide a comparative assessment of the performance of EU Member States.


According to the 2016 Scoreboard, Denmark, Finland, Germany, and Sweden are Innovation Leaders with innovation performance well above that of the EU average. Austria, Belgium, France, Ireland, Estonia, Latvia, Lithuania, and Poland, on the other hand, are only Moderate Innovators with a performance below that of the EU average.


Apart from the BSR being divided into two categories, the comparison of the values for 2008 and 2014 shows an improvement when 2008 is taken as the base year for all EU BSR countries except Finland, but a deterioration when 2015 is compared with 2014 for all countries except Denmark, Poland, and Sweden.


The Global Cleantech 100 Listis a biennial report compiled by CLEANTECH GROUP. In it 100 companies (chosen from several thousand) are presented, which are seen as best-positioned to solve clean technology challenges and to disrupt the markets they innovate in. Assuming the assessment is unbiased, the figures are sobering.


In 2010, the United States can boast 54 companies in this list, the figure for the entire BSR amounts to 14, and Estonia, Latvia, Lithuania, Poland and Russia are not represented at all. But in 2015, the situation has even worsened – only 9 BSR companies are included, whereas the US figure has risen to 57.


Since Norway and Russia are not members of the EU, their performance is not included.


Information and Communication Technology

Analyses of economic performance frequently address the issue of how well-prepared economic actors are for the IT-driven Fourth Industrial Revolution.


An index measuring how well an economy is using information and communications technologies to boost competitiveness and well-being is the WORLD ECONOMIC FORUM’s Networked Readiness Index.


Here, the BSR performance is much more satisfactory, not only because the values have improved noticeably, but also because the gap to the United States is shrinking. In 2010 the BSR average was 4.71 (with the maximum value possible being 6.0), whereas the USA value was 5.33. In 2016, the BSR value was 5.30 versus 5.8 (USA).


Investment

To gauge performance regarding attractiveness to investors, information in UNCTAD’s World Investment Reportwas utilised to calculate FDI inward stock per capita for the BSR and compare it with that of the USA. Unfortunately, the results are thoroughly satisfactory only for Denmark, whose figures (2010 – 2015) have grown and are better than the USA’s. Norway’s and Sweden’s figures both in 2010 and 2015 are better than those of the USA, but they are lower in 2015 than in 2010.


Conclusion & Suggestions

Conclusion & Suggestions


1) The BSR overall economic performance has not developed as well as we had hoped.

2) The East-West divide in performance is still in existence.

3) Russia’s figures in most categories give reason for special concern.

4) While the intra-European comparison is acceptable, the global perspective highlights BSR shortcomings.

5) Hence, we need to rekindle the enthusiasm of the early 1990s to cope with the current and future challenges and all efforts need to be made to create a novel perception of unity in the BSR.

6) Various suggestions presented in articles in the Baltic Rim Economies, should be picked up and implemented, e.g. a common BSR innovation strategy or a BSR media channel.






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