Aspects of globalization affecting the Lithuanian economy
Lithuania, a small open economy, started adapting to the terms of globalization just after gaining independence in 1991. Since then Lithuania has made a big progress in developing a market economy and facing the challenges of adopting it. During the period of 20 years of freedom almost 50% of state property has been privatized and trade has been diversifying with a gradual shift away from the former Soviet Union (closed market) to global markets. At the present moment, Lithuania’s main partner in trade is the EU: imports account for 57,9% and exports – 64,6%. Russia, however, remains the second most important partner: imports account for 30,6% and exports – 13%. The process of globalization is one of the major forces affecting Lithuanian economy and it’s development.
There are several aspects that specifically spur Lithuanian economy being globalized and thus enhance economic growth:
– excellent strategic location;
– ice-free port at Klaipeda;
– comfortable rail and highway system;
– agriculture potential;
– highly skilled labor force;
– comparatively diversified industrial sector.
The main problems, noted by numerous foreign and local experts are: lack of important natural resources and huge dependence on imports of fuels and raw materials (mainly form Russia). The most vital problem and as Snieška (2008) states is still high level of corruption among the country’s public officials and politicians. The same problem is also outlined by Swiss Federal Institute of technology in Zurich, in estimations of KOF globalization index. Many authors note, that corruption is one of the main obstacles to economic growth and the spread of globalization in most post-Soviet countries. The main cause of this phenomenon is the inheritance of Slavic traditions and culture, which are still very strong among older generations.
Former economic growth (until 2008) in Lithuania was mainly forced by private consumption and exports. Sectors such as construction, financial intermediation, and processing and light industries have contributed most. At the present moment, when the country experiences annual growth rate about -15%, it turned out that namely problems in construction and banking (financial intermediation) sectors were the main killers of the countries economy. Most experts in the lists of main crisis factors include the unavoidable process of globalization. By no means, globalization has affected the economic demise through interconnections of markets, financial systems and overall interconnectedness, but very often the portion of blame is exaggerated.
However, the process of globalization is also named among the main rescuers out of economic crisis through international trade and integration with other countries that are getting out of the crisis quite rapidly (such as Sweden, Norway, Finland and etc.) (Markovic, 2008, Niedvaras, 2008) In the short term, mitigating the impacts of economic recession and the global financial crisis is the main challenge ahead. Strong domestic adjustment policies, including measures to stabilize public finances, will need to be implemented in order to unwind the accumulated imbalances.
At the same time, one of the major challenges will be protecting the most vulnerable social groups from the impact of the ongoing economic crisis. In the medium term, adoption of the Euro and sustainable convergence with the EU are the key goals, to be supported with further structural reforms and efforts to foster the creation of a knowledge economy as a way of increasing Lithuania’s global competitiveness.
The advantages and disadvantages of Lithuania’s involvement process of globalization
The proponents of globalization argue that it enhances economic prosperity and leads to more efficient allocation of resources, which, in turn will result in higher output, more employment, lower prices and higher standard of living. However, some critics worry about the resulting outsourcing and offshoring, which have destroy more developed countries manufacturing sector. Scholars and experts name Lithuania as a country with relatively inexpensive, but highly skilled labour force. Thus Lithuania will only benefit out of negative aspects such as outsourcing and offshoring named by critics of globalization.
Among the main advantages of Lithuania’s participation in globalization process and adapting to it are: highly increased trade, inflow of foreign direct investment which results in rapid economic growth, the possibility for Lithuanian companies to have greater flexibility to operate across the countries borders, increased flow of communications that allows vital information to be shared between individuals and corporations, greater ease and speed of transportation for goods and people (transport association LINAVA was among the leader in the EU). To the so called “soft factors”, it is necessary to add the reduction of many cultural barriers, greater spread of democratic ideas and reforms, increased environmental protection, states Adekola (2008).
As already mentioned before, the main draw bag of globalization in Lithuania, could be named as the increased likelihood of economic disruptions in one nation effecting all nations (as it has already happened), greater risk of diseases being transported unintentionally between nations (as it has already happened in December 2009, as Pork influenza spread at an enormous speed in the whole Europe continent), international bodies like the World Trade Organization can infringe on national and individual sovereignty. Among the “soft factors” greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage, spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity, could be noted.
Lithuania’s position in the main indexes of globalization
Globalization can be measured. One of the most authoritative indexes of globalization (KOF) is concluded every year in Switzerland, Swiss Federal Institute of technology in Zurich. The KOF-index of globalization measures the three main dimensions of globalization: economic, social, and political. In addition to three indices measuring these dimensions, an overall index of globalization and sub-indices referring to actual economic flows, economic restrictions, and data on personal contact, data on information flows, and data on cultural proximity is calculated. According to the index, the world's most globalized countries (in descending order) are Belgium, Austria, Sweden, the United Kingdom and the Netherlands. The least globalized countries according to the KOF-index are Haiti, Myanmar the Central African Republic and Burundi. After conducting an analysis, it came out, that in overall globalization index (latest calculations) Lithuania is in the 60th position in the world, social globalization index – 51st, economic globalization index – 31st and political globalization index – only 84th. Among the three Baltic states Estonia is the leader in terms of globalization, followed by Latvia, and finally, Lithuania. Although politically Lithuania is most globalized of all three, socially it is lagging behind. Of all three specified globalization indexes the Baltic States do worst in political globalization: as they are still blamed for government still high levels of corruption, lack of freedom for the press, lack of liberalizing political reforms.
It is proved that the relationship between globalization and economic freedom has strong correlation and that economic freedom promotes globalization. The Index of Economic Freedom, prepared by the Heritage Foundation and the Wall Street Journal using statistical data from organizations, such as the World Bank, International Monetary Fund and the Economist Intelligence Unit, the Index scores nations on the following ten factors of economic freedom: business, trade, fiscal, freedom from government, monetary, investment, financial, property rights, freedom from corruption, and labour. Some factors in the Index, such as business freedom, trade freedom and investment freedom are essential elements of globalization. The higher the score on a factor, the greater the level of government interference in the economy and the less economic freedom in a country. The lower the scores, the better position the country occupies. Depending on the score, countries are separated into four categories: free, mostly free, mostly unfree, and repressed. Lithuania, among 161 countries is considered to be among “mostly free” countries, which is comparatively a good score for a country with only 20 years of independence and market economy
Lithuanian economic growth under conditions of globalization
It is complicated to categorize an economy as being globalized, yet there are several key indicators that suggest economic management decisions undertaken by the Government have come as a result of globalization process. The main evidence to suggest the globalization of nations has been the growth in global markets, changes in global consumption patterns, the establishment of intergovernmental agreements as well as the rise of transnational corporations states Diskienė (2008). Globalization in Lithuania has been essentially driven by the breaking down of command economics and elimination of some economic barriers between trade partners, which have resulted in greater economic growth in the country. Lithuanian economic liberalization has also been spurred on by the global trends towards the deregulation of national economies as well as state reforms (starting from the year 1990) to encourage greater competitiveness with in the global markets. As a result of the these reforms, restrictions on trade lowered, capital flows and foreign investments boomed. In addition to this, technological advancements over the last years (decade) contributed to this “economic liberalization”. Over the past decade transportation costs have reduced dramatically, making trade more cost efficient and thus resulted in substantial economic growth, states scholar Wade (2009). Communication costs have also reduced through advancements in telecommunications and emergence of greater competition in this sector (at the moment there are three main competing mobile operators in Lithuania: “Omnitel”, “Bite” and “TELE2”). Lithuania’s ecommerce is not growing so fast as in the neighbor countries, but the results of the year 2009 are comparatively satisfactory. Trade growth has contributed significantly to changes in living standards and economic growth in the country. While the increases in imports and exports have come as a result of falling protectionist policies and other factors, it has advantaged mainly producers of manufactured goods, while producers of primary goods still face barriers to trade (mainly with Russian Federation) Bernatonytė (2007). The quest for economic growth and improved quality of life has resulted in greater focus on nation’s external stability. Although Lithuania has no possibilities to manage its exchange rate, it still controls the balance of payments and foreign liabilities. As Litas is tied to the Euro, the risk concerned the volatility of foreign exchange markets, instability, sudden appreciations and depreciations, altering a nation’s competitiveness, are lowered, state scholars Naghshpour (2008), Tvaronavičius (2008) and Vojinovic (2008). As a result of globalization, improved access to international finance has detrimentally affected the economic growth (at the present moment demise) of Lithuania.
Conclusions
It is obvious that globalization is one of the most important phenomenon within the contemporary business and public environment. It has resulted in significant changes to individual countries in terms of economic development. The term globalization refers to the integration of local and international economies into a globally unified political economic and cultural order, and is not a singular phenomenon, but a term to describe the forces that transform an economy into one characterized by the embracement of the freer movement of trade, investment, labour and capital. The process of globalization spurred greater economic growth globally.
Lithuania, a small open economy, started adapting to the terms of globalization just after gaining independence in 1991. Since then Lithuania has made a big progress in developing a market economy and facing the challenges of adopting it. This can be illustrated by KOF globalization index (Lithuania is in the 60th position in the world). According to the Heritage foundation, Lithuania’s economic freedom score is 70.3, making its economy the 29th freest in the 2010 Index.
There is no doubt that globalization has affected the economic demise through interconnections of markets, financial systems and overall interconnectedness, but very often the portion of blame is exaggerated.
Besides being blamed for economic crises, the process of globalization is also named among the main rescuers out them through international trade and integration with other countries, that are getting out of crisis more rapidly.
The proponents of globalization argue that it enhances economic prosperity and leads to more efficient allocation of resources, which, in turn result in higher output, more employment, lower prices and higher standard of living, while sceptics note that globalization in Lithuania can cause economic disruptions, greater risk of diseases being transported unintentionally between nations, rule of international bodies like the World Trade Organization can infringe on national and individual sovereignty.
Globalization in Lithuania has been essentially driven by the breaking down of command economics and elimination of some economic barriers between trade partners, which have resulted in greater economic growth in the country.
By Sliburyte, Laimona & Masteikienė, Rūta. (2010). Impacts of Globalization on Lithuanian Economic Growth.
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