Trade policy in Lithuania: past experience and benchmarks for the future

Juozas Vijeikis, Gediminas Mačys

Abstract


National foreign trade is the economic sphere that determines the development of the international trade. Participation in global world markets is especially important for Lithuania as it is a free-market economy with the characteristics of a developing post-Soviet market. The vulnerability of the Lithuanian economy and the general level of globalization worldwide made integration into the European Union a necessity. This was one of the most significant events for the Lithuanian economy that gave start to a great number of changes in foreign trade. The world economic and financial crisis of the past few years has contributed to and made the problems under investigation more evident. Based on this background, the article analyses a topic relevant to the overall current development of Lithuania’s economy—the specifics of Lithuania’s foreign trade development—by determining its underlying problems. The aim of the article is to analyse the trends and problematic areas in Lithuania’s foreign trade development. Export and import flows have been chosen as objects for the analysis. The methodology for the investigation comprises statistical data, chronological comparative analysis and use of the theory of constraints. The paper discusses the European Union’s foreign trade policy and the course of Lithuania’s integration into its trade system. Lithuania’s foreign trade development throughout the period of 1995–2008 has been analyzed by using statistical database analysis. By using the method of the theory of constraints, a comprehensive foreign trade investigation has been carried out, in which the underlying problems in this economic area that hinder the functioning of foreign trade have been identified. Also, proposals on how to improve the effectiveness of the functioning of foreign trade have been provided. During the period of occupation, the independent functioning of Lithuania’s foreign trade was restricted. Only after Lithuania regained its independence in 1991 did the volume of international trade begin to grow. Since the country became a member of the integral European Union, it expanded its foreign trade markets and substantially improved its conditions for international trade. The statistical database analysis that has been carried out enabled us to conclude that during the periods of 1995– 2003 and from the admittance to the European Union until 2009, exports and imports increased more than fourfold. The foreign trade balance deficit doubled in the periods under the investigation. The following major problems in Lithuania’s foreign trade have been identified: a large trade balance deficit, the dependence of the dominant share of exports on imported raw materials, and the export of goods that are small value-added. By using the method of the theory of constraints, the fundamental obstacles that conditioned the problems in Lithuania’s foreign trade have been identified: a cheap labour force in the country—an insufficient advantage in the long run, export and production structure typical of developing countries, lack of data on foreign countries’ trade regulations, and Lithuania’s low image. Apart from these problematic areas, the recent global economic and financial crisis has also contributed. To reduce problematic areas in Lithuania’s foreign trade, the trade balance deficit ought to be decreased by means of export stimulation. This calls for changes in trade conditions: the expansion of export zones, an improvement of the country’s image, the reduction of trade risk by fostering cooperation, the establishment of an effective business insurance system, and the improvement of financing conditions. To improve the structure of exports, it is necessary to switch from the energy and labour intensive sectors to those that create higher value-added goods by utilizing the intellectual potential of the country and by investing in scientific research. To improve export infrastructure its dependence on the import of raw materials ought to be decreased by exploiting local renewable energy sources. Stimulating the consumption of Lithuanian goods and services is also of great importance.

Keywords


international trade; foreign trade; export; import; trade balance

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"Intellectual Economics" ISSN online 1822-8038 / ISSN print 1822-8011