The impact of globalization on living. living standard, quality of life and international. competitiveness the Baltic States

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1 ISSN Taikomoji ekonomika: SISTEMINIAI TYRIMAI: /2 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States This paper discusses and analyzes the relations between globalization, livings standard, quality of life and international competitiveness. Special focus is on the Baltic countries. Furthermore, the question is asked, whether there are obstacles to high growth in the future for Estonia, Latvia and Lithuania. Keywords: globalization, living standard, quality of life, international competitiveness, the Baltic States, GDP, GDP pc, HDI, obstacles to growth. Šis straipsnis aptaria ir analizuoja santykius tarp globalizacijos, gyvenimo lygio, gyvenimo kokybės ir tarptautinio konkurencingumo. Ypatingas dėmesys skiriamas Baltijos šalims. Be to, iškeliamas klausimas, ar yra kliūčių ateityje pagreitinti augimą Estijoje, Latvijoje ir Lietuvoje. Raktiniai žodžiai: globalizacija, gyvenimo lygis, gyvenimo kokybė, tarptautinis konkurencingumas, Baltijos šalys, BVP, BVP gyventojui, žmogaus socialinės raidos indeksas, augimo kliūtys. JEL Classifications: D6/Q56. Introduction In this paper we deal with four phenomena of great international interest: globalization, living standard, quality of life and international competitiveness. While politicians and journalists on one hand seem to be concerned about the European situation in an international context, economists on the other hand are often more positive. The topical issue and research object of this paper is firstly to discuss how the main variables are defined and described. Secondly we present some theoretical ideas about possible relations between the variables. Thirdly, some statistical correlations are presented and discussed. Finally, one of the targets is to discuss whether obstacles to future economic growth can be seen in the Baltic countries. The research methods are both empirical and theoretical, with descriptions and argumentation with the help of models. Furthermore, some statistical methods were used to estimate correlations between the rankings of 46 countries between the main variables are presented. The sample included the Baltic countries. There are some limitations, regarding the quantitative sources and the countries discussed. Figures from the European Commission, the World Economic Forum (WEF), the United Nations Development - PhD, senior lecturer in economics (retired), University of Skövde, School of Technology and Society. Address: Rösselviksvägen 308, S Fagerfjäll, Sweden. Phone: (0) schuller.akbj@telia.com.

2 66 Programme (UNDP), The Economist s Intelligence Unit and the ETH from Switzerland for the years 2007 to 2010 are used to illustrate the situation and to estimate some statistical correlations. Furthermore, we have a look at the Baltic States regarding their international positions and compare with Sweden as a top economic performing country in Europe and in the world. Finally, we compare with Germany, which is the largest economy in Europe and one of the largest foreign trading countries globally. The paper is organized in the following way. After the introduction, in section 2 the empirical variables are presented. Section 3 consists of some theoretical arguments about the relations between globalization, livings standards, quality of life and international competitiveness. Section 4 gives some background information about the five countries, their economic and population size, average standard of living and their foreign economic relations. Section 5 describes the positions of the Baltic countries. In section 6 correlation coefficients for the variables of central importance are shown for a sample of 46 European or European neighbourhood countries, which includes the five countries. Section 7 discusses whether the Baltic States will have a possibility to achieve again the high growth rates of the past or whether important obstacles could be seen. Section 8 consists of the summary and the conclusions and in section 9 the references are shown. Empirical variables While economists, when discussing globalization think about foreign trade, international capital and labour movements, the common debate seems to be more comprehensive. In this paper we have used as a measure of globalization the KOF index of globalization (ETH, 2010), which consists of economic globalization, social globalization and political globalization. Living standard is expressed in two ways. Firstly, we use GDP per head of population in purchasing power parities (GDP pc PPP) as an absolute measure of average living standard. Secondly, the Human development index (HDI), presented by the UNDP can be seen as a relative measure of living standard. The HDI consists of three parts: 1) up to 2009 GDP pc PPP, 2) Life expectancy at birth, and 3) an education index. In 2010 some changes in the construction of the HDI were made. GDP pc was substituted with Gross National Income (GNI) per head of population. For many countries, the difference between GDP and GNI is rather small, but for some countries differences close to 20% can be observed. Furthermore, the education index was defined somewhat differently and finally the method to calculate the HDI was changed. The large changes in HDI positions for many UN members between 2009 and can therefore at least partially be explained with the changes of methods. The quality of life index, presented by the Economist, consists of nine sub-indices: 1) cost of living, 2) leisure and culture, 3) economy, 4) environment, 5) freedom, 6) health, 7) infrastructure, 8) risk and safety, and 9) climate. Finally the World Economic Forum (WEF) has presented as a measure of international competitiveness of countries the Global competitiveness index (GCI), which compares countries with respect to their relative international competitive position. The GCI consists of 12 pillars, which are divided in three groups: 1) Basic requirements: institutions, infrastructure, macroeconomic environment, health and

3 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States 67 primary education, 2) Efficiency enhancers: higher education and training, goods markets efficiency, labour markets efficiency, financial market development, technological readiness, market size, 3) Innovation and sophistication factors: business sophistication, innovation (see more in WEF, The Global Competitiveness Report ). In older editions of the Global Competitiveness Report the WEF even presented the Business Competitiveness Index (e.g. WEF, 2007). According to the WEF, a competitive country makes high standard of living, employment and economic growth in the medium and long run possible (WEF, 2002). Some theoretical points of view Economists often look at foreign trade and international movements of factors of production, when discussing globalization. According to the international trade models (see, e.g. for the following Krugman & Obstfeld, 2009), countries which export and import because of comparative advantages and disadvantages, can rise their national income. Furthermore for a trading country the production frontier is not anymore the limit for consumption. By exporting products with comparative advantages and importing products with comparative disadvantages, a country can raise its productivity and its average incomes. Another example of mutually gainful foreign trade is in industries where economies of scale (EOS) exist 2. Especially the firms in small countries with small national markets need foreign trade to fully exploit EOS. B. Ingham (2004) discusses the idea of dynamic advantages. Trade is not only an exchange of goods and services, but leads even to international movements of technology, production and organization methods. Countries, which are with respect to these factors less advanced, can improve their production possibilities by import of goods and services and technology and modern production and organization methods. The gravity model (Ingham, 2004) explains the trade between two countries. Sweden e.g. has much higher trade with Norway than with China. Factors like GDP pc, population, language, geographical and cultural closeness, etc. can explain this type of foreign trade. When assuming that national and foreign labour are very similar to each other they can be seen as substitutes international labour movements can increase the GDP of the world. Yet, in this case, factor prices both for labour and for capital are influenced. Domestic labour with high wages fear that foreign immigration of cheap labour will dump the national wage level, while domestic capital owners welcome foreign worker not only because of the possible effects on domestic labour costs, but even because more labour rises the return of domestic capital. Probably, foreign and domestic labour is not always substitutes, but can even be complements. Suppose domestic workers are equipped with more human capital than foreign ones. In this case immigration of workers from abroad could influence the productivity of national workers positively because immigrant workers are performing jobs, which either are not done or for which the domestic workers are overqualified. So the fear that foreign workers are taking national jobs and implicate dumping of national wages is realistic only in the case of substitution of national workers with immigrant ones.

4 68 Finally, even movements of capital could be analyzed with similar models. Capital moves to the places with highest return. Free movement of capital could lead to rising world GDP. Another model is presented in P. R. Krugman and M. Obstfeld (2009). Here it is a situation of two countries, of which one has an old population with very much capital and low returns (the old country), while the other country has a young population with not very much capital and high capital returns (the young country). The country with the old population and much capital can invest in the country with a young population and less capital. When the old country exports capital, the return will rise, while the young country can import capital for lower interest rates. Both countries can gain from these transactions. What about globalization and the other variables? We would expect that globalization is influencing living standards positively. Yet, there is the problem of rising inequality of the income distribution. With other words, it is possible that some groups feel that they are hurt by globalization. Probably a public policy of income redistribution is necessary so that even these groups are accepting the changes of economic and social structures. Furthermore, according to D. N Weil (2009), a more equal income distribution probably leads to rising human capital, which in the economically advanced countries is a very important factor of production. Rising standard of living can probably increase the quality of life. Falling infant mortality and rising life expectancy in the countries with high living standard give some evidence. Finally, something can be said about international competitiveness of countries. Though economists like M. E. Porter (1990, 1998) and P. R. Krugman (1993) argue, that products, firms and industries are competing internationally and not countries, European politicians and journalists seem to be concerned about their countries competitiveness (Presidency conclusions, 2000). Globalization means that we have to compete with products, labour and capital from all over the world. Competitiveness is necessary for a high level of economic welfare and the WEF (2002) sees a country as competitive, if its inhabitants have high levels of living standard, employment and growth in the medium and long run. Some background information In this section we present some figures for the five countries about GDP, GNI, Population, and foreign trade. Table 1 shows that the Baltic countries are regarding GDP and population small economies, compared with Sweden and Germany. In a world perspective, the GDP pc and GNI pc is above the world average, but of course below the levels of Sweden and Germany. While the differences between Swedish and German GDP pc and GNI pc are rather small, in the Baltic countries GDP pc is considerably larger than GNI pc. Our conclusion would be that these countries have to pay for foreign factors of production, used at home. We would believe that in this case it is a question of financial and physical capital. Finally in the Table 1, some information about foreign trade and the current balance is shown. Estonia is the country with the largest exports to other EU members, relative to total exports. Even Latvia and Lithuania have larger export to EU shares of total export, compared with Sweden and

5 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States 69 Table 1 GDP, Population, GDP pc, GNI pc, HDI position, foreign trade and current balance, Estonia, Latvia, Lithuania, Sweden and Germany, Estonia Latvia Lithuania Sweden Germany World GDPExr ,4 33,8 47, , ,1 GDPPPP ,7 37,1 59,6 340,8 2904, ,9 Population ,3 2,2 3,3 9,3 82,1 6908,7 GDPpcPPP GNIpcPPP GNIpc%GDPpc 80,6 76,8 82,1 100,8 99,8 HDI position Export shares EU 71,1 68,4 64,6 59,1 62,2 Import shares EU 78,8 63,8 60,7 70,8 66,4 Export % GDP 64,7 43,9 54,6 48,5 40,8 Import % GDP 58,6 45,4 56,1 41,6 35,9 Current Account Balance, % GDP 4,5 8,6 2,6 7,3 5 Current account balance: balance of trade, factor incomes across the border, transfer payments. While Germany and Sweden had positive current account balances, the Baltic countries up to 2008 had compared large negative current account balances. From 2008 on, for Estonia and Lithuania, positive balances can be observed, while Latvia has negative balances, which are smaller than the ones between 1997 and Export shares EU: exports of goods to other EU members, % of total exports of goods. Import shares EU: imports of goods from other EU members, % of total imports of goods. GNI = GDP + factor incomes from abroad factor incomes to the rest of the world. GDPexr: GDP in exchange rates. GDPPPP: GDP in purchasing power parities. Source: European Economy, 2010, UNDP, Germany. Estonia is even the country with the largest share of imports from other EU members, while Latvia and Lithuania are somewhat below the level of Sweden and Germany. All countries had in 2009 positive balances in their current accounts. The positions of the Baltic States In this section we describe the positions of the Baltic countries regarding various rankings. We start with the Lisbon Review (WEF, 2010a) for the 27 EU member countries, as an expression of European competitiveness, continue with the HDI and GNI pc positions (UNDP, 2010) as expressions of rankings of living standard, present figures for the Global Competitiveness Index (WEF, 2010b) and finish with the Quality of Life Index (QUL) for 2010, presented by the Economist (2010) and the KOF index of globalization for 2010, from a Swiss technical university (ETH, 2010). In the year 2000, the Lisbon European Council (Presidency conclusions, Lisbon, 2000) decided to make the European Union the most competitive economy in the world, regarding employment and economic growth. Later on even social and environmental aspects were included. Between 2002 and 2010, the World Economic Forum (WEF) published Lisbon Reviews to investigate how the members of the EU, compared with each other and

6 70 some non-member countries, were successful in approaching some of the goals to achieve the Lisbon aims 3. Table 2 shows the positions of our five countries for 2010 and As the Table 2 shows, Estonia both in 2010 and in 2008 had a Lisbon ranking position above the average, while Latvia and Lithuania were below the average with somewhat deteriorating positions. Sweden was in 2010 ranked on the first position, while Germany was on place 6. Table 3 shows the ranking regarding the Global Competitiveness Index (WEF, 2010b), which is a measure of international competitiveness of countries. To achieve a high competitive position, the WEF mentions 12 pillars of competitiveness 4. As Table 3 shows, four of the five countries have improved their competitive position between and , though the number of countries has grown somewhat. Only Latvia has a deteriorated ranking of competitiveness. Table 4 gives some information about the standard of living, expressed by the rankings of the Human Development Index (HDI) and the GNI pc in purchasing power parities. The UNDP (2010) divides the 169 countries in four groups: 1. Very high human development 42 countries, including Sweden, Germany, and Estonia; 2. High Human development 43 countries, including Lithuania and Latvia; 3. Medium human development 42 countries; 4. Low human development 42 countries. As Table 4 illustrates, all five countries have high positions in the rankings of both HDI and GNI pc. Furthermore, all countries have higher positions regarding the HDI rankings, compared with the GNI rankings. Table 5 shows the rankings for the Quality of life index (QUL) and the KOF index of globalization. Lisbon Rankings for the 27 EU members, 2010 and 2008 Table 2 27 EU members Rank 2010 Rank 2008 Sweden 1 2 Germany 6 6 Estonia Lithuania Latvia Source: WEF, 2010a. GCI Rankings, , Table , 139 countries , 133 countries Sweden 2 4 Germany 5 7 Estonia Lithuania Latvia Source: WEF, 2010b.

7 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States 71 HDI (2010) and GNI pc (2008) Rankings, 169 countries Table 4 HDI (2010) GNI pc (2008) Estonia Latvia Lithuania Sweden 9 17 Germany HDI: A summary of GNI pc in PPP, life expectancy at birth and an education index, constructed by the UNDP. The 2010 edition of the Human Development Report made important changes compared with older editions. GNI = GDP + Net factor incomes from abroad (positive, zero or negative). Source: UNDP, Quality of Life index, KOF Index, rankings, 2010 Table QUL, 194 countries KOF,181 countries Sweden 30 5 Germany 4 18 Estonia Latvia Lithuania Source: QUL - The Economist; KOF ETH. Even Table 5 shows very high rankings for the five countries. The relative low position for Sweden, regarding QUL is somewhat of a surprise. As a conclusion for this section, we can mention that the five countries are in an international context very highly ranked regarding GCI, HDI, GNI pc, QUL and KOF, with Latvia as the only exception for GCI. Some correlations In M. Olsson and B. -J. Schuller (2011), the authors presented several types of correlations for the main variables. The data material consisted firstly of the 27 EU members and secondly of 46 countries, which included besides of the 27 EU members even 19 other European countries or countries in the European neighbourhood 5. Correlation coefficients were estimated both for the variables and the rankings of countries regarding these variables. Table 6 shows some of the correlation coefficients of the 46 countries. A first inspection of the Table 6 shows, that all correlation coefficients are positive and very high. Furthermore, because GDP pc is included in HDI, the high correlation coefficient between these two variables is no surprise. The following conclusions can be mentioned. Countries, which have high rankings regarding competitiveness (GCI, BCI), quality of life (QUL) and globalization (KOF), are even highly ranked regarding HDI and GDP pc, which express in this work standard of living. Finally, countries, which are highly ranked regarding quality of life, are even highly ranked regarding globalization.

8 72 Table 6 Correlation coefficients for rankings of countries regarding globalization, living standard, quality of life and international competitiveness, 46 countries, Rankings of correlatons, 46 countries HDI GDPpc GCI BCI QUL KOF HDI 1 GDPpc 0,969 1 GCI 0,868 0,911 1 BCI 0,886 0,928 0,982 1 QUL 0,842 0,835 0,814 0,817 1 KOF 0,832 0,846 0,846 0,847 0,865 1 BCI: Business Competitiveness Index, which is shown in older editions of the Global Competitiveness Report UNDP substituted in 2010 GDP pc with GNI pc. Here we used GDP pc. Source: Olsson and Schuller, In another paper (Schuller, 2009), similar results as in Table 6 were found. In a sample of 58 countries all over the world 6, high and positive correlation coefficients between globalization, international competitiveness, living standards and quality of life were found. The future: obstacles to high growth in the Baltic countries? The Baltic States belong to a group of countries with strong positive correlations between globalization, standard of living, quality of life and international competitiveness. In this section we discuss the growth situation of Estonia, Latvia and Lithuania both in the short and the long run, especially regarding the question of sustainability of growth. While the Baltic States between the end of the 1990s and 2007 belonged to the fastest growing economies in the world, the economic and financial crisis in 2008 and 2009 lead to a large fall in GDP and GDP pc. According to the European Commission (2010) from 2010 (Estonia, Lithuania) and 2011 (Latvia) on, these economies show again rising GDP and GDP pc. The question is yet the following: Are these countries back at the levels of GDP and GDP pc before the crisis? In B. J. Schuller (2011) the growth rates for GDP and GDP pc presented by the European Commission were used to calculate the level of these variables with the year 2007 as the base year. The result of the calculations were the following ones: while Sweden and the average EU27 member are in 2012 back or above the level of 2007, the Baltic States in 2012 are significantly below the level of They need with other words high growth rates in the near future. But even during the years of high growth some signs of warning regarding the sustainability could be seen. Between 2000 and 2007 the Baltic countries had high positive output gaps, i.e. positive differences between actual and potential GDP. Production was with other words higher than what was possible in the long run with existing production capacities. According to the model of aggregated demand (AD) and short run (SAS) and long run aggregated (LAS) supply (see, e.g. Case, Fair and Oster, 2009), a positive output gap means that production is above the LAS level. The risk than is high and rising inflation and sooner or later stagnation in the economy. The development during the years of high output gaps in the Baltic countries seems

9 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States 73 to support the model; when the output gap was positive, the Baltic countries had high rates of inflation, which were above the EU27 level 7. In this section we are even interested whether obstacles for long run high growth rates in the Baltic States can be found. We start with the argumentation of D. N. Weil (2009), who claims that human capital is especially important in highly developed countries 8. Human capital is dependent of a high level of health and education among the population and the work force and according to Weil, the income distribution influences the access to health and education expenditure: a more equal income distribution leads to a higher level of health and education. In Table 7 we will present figures describing the income distribution and the public expenditures for health, education, research and development (R&D) in % of GDP. As the Table 7 illustrates, the income distribution in the Baltic States is considerably more unequal than in Sweden and Germany, both regarding the Gini coefficient and the 10 to 10 relation. Following D. N. Weil (2009) one would therefore expect problems regarding human capital and economic growth. In Table 8 we present figures which can be related to human capital. As the Table 8 shows, relative to GDP, the Baltic countries have higher public expenditure for education than Germany, but lower than Sweden. Regarding public expenditures for health care, Estonia, Latvia and Lithuania are relative to GDP considerably below Sweden and Germany. Finally, the three countries have relative to GDP very low expenditures for research and development 9. Arguing that expenditures for education, health care and R&D can be seen as investments in human capital. Table 7 Income distribution: the Gini coefficient and the relation incomes for the 10% richest compared with the 10% poorest of the population Gini coefficient Incomes for the richest 10% to the poorest 10% (10 to 10) Estonia 36,0 10,4 Latvia 36,3 10,3 Lithuania 35,8 10,3 Sweden 25,0 6,2 Germany 28,3 6, Source: Gini coefficient: UNDP 2010, 10 to 10: UNDP, Public expenditure for education, health and research and development, % of GDP Table 8 Public Expenditure, % of GDP Education Health R&D Estonia 5 4,1 1,1 Latvia 5 3,6 0,6 Lithuania 4,7 4,5 0,8 Sweden 6,7 7,4 3,7 Germany 4,4 8 2,6 R&D: Research and development. Source: UNDP, 2010.

10 74 In Table 9 we present figures for gross fixed capital formation. According to Table 9 the Baltic countries have high investment rates compared with Sweden and Germany. In Table 10 we present figures for life expectancy at birth, which could be seen as an indicator of health. As Table 10 shows, while life expectancy at birth between and in Sweden and Germany was growing with between 5 and 7 years, in the Baltic countries this variable was practically stagnating. After 2008, yet, life expectancy at birth is projected to rise in all countries and especially strongly in Estonia, Latvia and Lithuania. This is of course a positive development. On the other hand, it will even raise the old age dependency, which is the relation between older people (65 and older) and the working population (15 64), which is illustrated in Table 11. As Table 11 illustrates, while the old age dependency rates in the Baltic countries and Germany have grown, in Sweden there are only small changes. Table 9 Gross fixed capital formation, % of GDP, Estonia, Latvia, Lithuania, Sweden, Germany, 2008 % of GDP 2008 Gross fixed capital formation, % of GDP Estonia 29,3 Latvia 30,2 Lithuania 24,4 Sweden 19,5 Germany 19,2 Gross fixed capital formation: investment in physical capital, % of GDP. Source: UNDP, Table 10 Life expectancy at birth, Estonia, Latvia, Lithuania, Sweden, Germany, years, Total Total Males Females Life expectancy at birth, years Estonia 70,5 70, ,84 78,74 87,53 Latvia 70,1 71,3 65,95 80,47 76,67 86,79 Lithuania 71,3 72,1 68,89 80,45 77,43 86,87 Sweden 74,5 80,1 78,96 85,42 83,14 89,31 Germany 71 78,7 77,3 84,91 82,57 89,09 Source: UNDP, 2007, European Economy, Old age dependency rate, Estonia, Latvia, Lithuania, Sweden, Germany, 1990 and 2010 Table 11 Old age dependency ratio Estonia 17,5 25,2 Latvia 17,7 25,4 Lithuania 16,4 23,7 Sweden 27,7 28,1 Germany 21,7 30,9 Old age dependency ration: population 65 and older, % of population Source: UNDP, 2009.

11 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States 75 In Table 12 we present the projections for the population 65 and older as % of total population. Table 12 illustrates that the part of the population, which is 65 and older according to the projections of the European Commission, will rise strongly in the future, especially in the Baltic States. As the figures show, in the Baltic countries life expectancy at birth will rise strongly after a long period of stagnation. This can be seen as something positive. But, on the other hand, this means too, that the working age population has to support a growing older population and the costs for ageing will rise strongly in the future. In Table 13 we will present figures for the employment rate, i.e. the part of the population 15 64, which is employed and the number of employed persons. As Table 13 illustrates, the employment rate is generally rising. Because in four of the five countries the working age population is falling the total number of employed persons is falling. This means that a falling number of employed persons have to support a rising number of people 65 and over. We are now ready for a conclusion for this section. Assuming a production function with three factors of production (labour, human capital and physical capital), some arguments regarding economic growth 10 for the Baltic countries can be mentioned. Population and employment in these countries are falling strongly. Expenditures for education, health care and R&D are not very high, while the ones for physical investments are above average. We would therefore expect that economic growth in the Baltic countries is close to the Table 12 Population 65 and over, % of total population, Estonia, Latvia, Lithuania, Sweden, Germany, projections Population 65 and over, % of total population Estonia 17,1 30,7 Latvia 17,1 34,4 Lithuania 15,6 34,7 Sweden 17,4 26,6 Germany 19,8 32,5 Source: European Economy, 2/2009. Table 13 Employment rate and number of employed persons, Estonia, Latvia, Lithuania, Sweden, Germany, 2008 and 2060 Employment rate Number of employed persons Estonia 69,4 72 0,6 0,5 x Latvia 68,5 70,6 1,1 0,6 x Lithuania 65,1 65,8 1,5 0,9 x Sweden 74,3 77,6 4,4 4,8 xx Germany 69,6 74, ,1 x x: in these countries, the working age population (not shown) falls. xx: in Sweden, the working age population (not shown) grows. Number of employed persons in millions.

12 76 European average. We will therefore finally show the projections of the European Commission for the growth rates of GDP and GDP pc (Table 14) and the calculations for GDP pc in 2060 based on the projections for GDP pc (Table 15). First of all, the Table 14 shows that all growth rates on average are positive. The GDP growth rates for the Baltic countries are of comparable size with Sweden, while Germany has a somewhat lower one. Regarding GDP pc, which can be seen as a measure of average standard of living, because of the falling populations in the Baltic countries, the growth rates for these countries are considerably above the ones for Sweden with a growing population and Germany. Finally, according the projections, the growth rates for GDPEmp a measure for total labour productivity in the Baltic countries are larger than the ones for Sweden and Germany. Seeing productivity as a base for international competitiveness of countries (see, e.g. Porter, 1990, 1998), it seems that the Baltic countries can expect at least in relative terms a decent future economic development. Using the growth rates for GDP pc, in Table 14 we present the following calculations. Staring with 2008 with the figures for GDP pc (UNDP, 2010) we calculate the GDP pc for Furthermore, we ask whether there are tendencies of convergence for GDP pc for the Baltic countries, compared with Sweden (Table 15). As the Table 15 illustrates, using the projections for growth of GDP pc, the Baltic countries will have in 2060 a GDP pc in Table 14 Projections for the growth rates per year: GDP, GDP pc, GDP per employed person (GDPEmp), Estonia, Latvia, Lithuania, Sweden, Germany, projections GDP GDP pc GDPEmp Estonia 2 2,3 2,4 Latvia 1,7 2,2 2,8 Lithuania 1,7 2,3 2,7 Sweden 1,9 1,6 1,8 Germany 1,2 1,5 1,8 In prices of Source: European Economy, 2/2009. Table 15 GDP pc in PPP, price level for 2007, level and growth rates, Estonia, Latvia, Lithuania, Sweden, Germany, 2008 and , projections GDP pc GDPpc Sweden = 100 GDPpc 2060 Sweden = 100 Estonia 2, Latvia 2, Lithuania 2, Sweden 1, Germany 1, In prices of Source: European Economy, 2/2009, UNDP 2010.

13 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States 77 purchasing power parities (PPP), which is below the ones of Sweden and Germany. Yet we can see some tendencies of convergence: the gap in GDP pc between the Baltic countries on one hand and Sweden and Germany on the other hand is in relative terms lower in 2060 than in Conclusions In this paper we have investigated the relations between globalization, living standard, quality of life and international competitiveness both empirically and theoretically. The focus is on the Baltic countries, which are compared with Sweden as an economically highly performing country and Germany, which is the largest economy in Europe now. Though the differences between living standards, expressed as GDP pc, between the Baltic countries on one hand, and Sweden and Germany on the other hand are large, Estonia, Latvia and Lithuania are considerably above the world average. Regarding globalization, living standard, quality of life and international competitiveness the four main variables - in a world perspective the Baltic States are quite highly ranked, with Estonia as the leading country. Statistical correlations regarding the rankings for 46 European countries or countries in the neighbourhood of Europe show that high and positive correlation coefficients between the rankings of countries for the main variables can be observed. Countries, which are highly ranked regarding globalization, are even highly ranked regarding standard of living, quality of life and international competitiveness. Furthermore, countries which are highly ranked regarding standard of living are even highly ranked regarding quality of life and international competitiveness. The economic and financial crisis implicated a large fall of GDP and GDP pc in the Baltic countries, i.e. negative growth. Yet, already before the crisis, some signs of concern could be seen. Large positive output gaps could be observed in Estonia, Latvia and Lithuania, i.e. differences between actual and potential output. Economic theory would in this case expect rising inflation and stagnation in production. After the crisis, the output gap is negative, i.e. economic growth is with existing production capacities possible. Even some obstacles for long run economic growth can be observed in the Baltic countries. The income distributions in Estonia, Latvia and Lithuania are much more unequal than in Sweden and Germany, which according to Weil (2009) could be an obstacle for the development of human capital which in highly developed countries is a very important factor of production, influenced by health and education of the population. Expenditures for education, health care and research and development probably should rise in the Baltic countries to stimulate human capital. Perhaps the most critical development in Estonia, Latvia and Lithuania has to do with ageing, total population and employment. Life expectancy at birth and therefore old age dependency are according to the European Commission strongly growing, while total and working population is falling. The consequence is the following one: fewer working people have to support more people 65 years and over. In total, growth rates in the Baltic States as in the EU27 are projected to be positive. GDP pc in Estonia, Latvia and Lithuania probably will grow somewhat more than in Sweden and especially

14 78 Germany. Calculating with these projected growth rates, some tendencies of Baltic convergence to the Swedish level can be seen. Obviously, even in 2060 differences between Swedish and German levels of GDP pc with the Baltic countries have to be expected. Notes 1 USA was in the 2009 edition of the Human Development Report on position 13 and Germany on position 22. In 2010, USA was on rank 4 and Germany on rank In this case, average costs are falling, when production is rising. 3 The WEF mentions the following goals: 1. Creating an Information Society for All, 2. Developing a European Area for Innovation, Research and Development, 3. Liberalization, 4. Building Network Industries, 5. Creating Efficient and Integrated Financial Services, 6. Improving the Enterprise Environment, 7. Increasing Social Inclusion, 8. Enhancing Sustainable Development Institutions, 2. Infrastructure, 3. Macroeconomic environment, 4. Health and primary education, 5. Higher education and training, 6. Goods market efficiency, 7. Labour market efficiency, 8. Financial market development, 9. Technological readiness, 10. Market size, 11. Business sophistication, 12. Innovation. 5 The Baltic Countries were included in the data material. 6 The Baltic Countries, yet, were not included in the material (Schuller, 2009). 7 The economic and financial crisis was probably the main reason of the fall in GDP and GDP pc in the Baltic Countries. It is yet possible, that the large positive output gap was one of the explanations why the fall was that large in Estonia, Latvia and Lithuania. 8 According to the classification of the UNDP, the Baltic Countries belong to the ones with very high or high human development. 9 As shown before, Ingham argues that there could be dynamic advantages: countries with a lower level of technologic development can import modern production techniques and methods and advance its technological level. 10 Expressed as growth of GDP, GDP pc and GDP per employed person, all in constant prices. References 1. Case, K. E., Fair, R. C. and Oster, S. M. (2009). Principles of Economics, 9 th edition, Prentice Hall, London. 2. ETH (Eidgenössische Hochschule Zürich) (2010). KOF Index of Globalization. 3. European Commission (2008) Ageing Report: Underlying Assumptions and Projection Methodologies, European Economy 7/2008, Luxembourg. 4. European Commission (2009) Ageing Report: Economic and budgetary projections for the EU-27 Member States ( ). European Economy 2/2009, Luxembourg. 5. European Commission (2010). European Economic Forecasts autumn 2010, European Economy 7/2010, Luxembourg. 6. Igham, B. (2004). International Economics A European Focus, Prentice Hall, Harlow, England. 7. Krugman, P. R. (1994). Competitiveness A Dangerous Obsession, in: Foreign Affairs, March/April Krugman, P. R. and Obstfeld, M. (2009). International Economics Theory and Policy, 8 th edition, Pearson Allison Wesley, Boston. 9. Lisbon European Council (2000). Presidency conclusions, Lisbon 23 and 24 march Olsson, M., Schuller, B.-J. (2011). Living Standard, Quality of Life, Globalization and Competitiveness in the EU and the Neighbour Countries An Empirical Analysis, unpublished manuscript. 11. Porter, M. E. (1990). The Competitive Advantage of Nations, MacMillan, new edition Schuller, B.-J. (2009). Globalization, Living Standards and the Quality of Life, in: Tiltai, 2009 Vol. 39, Klaipeda University.

15 The impact of globalization on living standard, quality of life and international competitiveness the Baltic States Schuller, B.-J. (2011). Macroeconomic Performance in the Baltic Countries A European Perspective, to be presented at Klaipeda University, autumn Schuller, B.-J. (2011). Swedish and Baltic Competitiveness in a European Perspective Some Quantitative Aspects, unpublished manuscript. 15. The Economist Intelligence Unit (2007). Qualityof-life-index United Nations Development Programme UNDP (2007). Human Development Report 2007/08, New York. 17. United Nations Development Programme UNDP (2009). Human Development Report 2009, New York. 18. United Nations Development Programme UNDP (2010). Human Development Report 2010, New York. 19. World Economic Forum WEF (2002). Lisbon Review , Geneva. 20. World Economic Forum WEF (2010). Lisbon Review 2010 (2010a), Geneva. 21. World Economic Forum WEF (2010). Global competitiveness Report (2010b), Geneva. 22. Weil, D. N. (2009), Economic Growth, 2nd edition, Addison-Wesley, Boston. 23. Wilkinson, R. and Pickett, K. (2010). Jämlikhetsanden, Karneval förlag, Stockholm. The paper submitted: July 12, 2011 Prepared for publication: September 1, 2011 GLOBALIZACIJOS ĮTAKA Gyvenimo lygiui, GYVENIMO KOKYBEI IR tarptautiniam konkurencingumui Baltijos šalys S a n t r a u k a Nors globalizacija žurnalistų ir politikų dažnai yra vertinama skeptiškai, ekonomistai paprastai turi teigiamą nuomonę apie šį reiškinį. Kaip rodo viešos diskusijos, globalizaciją ne visada lengva išreikšti. Šiame straipsnyje mes kartu su globalizacija apibrėšime tarptautinius prekių ir paslaugų bei gamybos veiksnių judėjimus. Mes net pateiksime Šveicarijos universiteto sudarytą globalizacijos indeksą (KOF globalizacijos indeksas). Kaip globalizacija įtakoja gyvenimo lygį ir gyvenimo kokybę? Globalizacija, apibrėžta aukščiau minėtais būdais reiškia, kad nacionalinės pramonės ir įmonės gali specializuotis gaminti produktus, kurie turi absoliutinį ar santykinį pranašumą. Tokiu būdu gali būti padidintas šalies produktyvumas ir realios pajamos. Be to ir tai yra ypač svarbu mažesnėms ekonomikoms globalizacija didina šalies rinkų potencialą. Kai egzistuoja masto ekonomija, galima pagaminti daugiau su mažesniais vidutiniais kaštais. Daug žurnalistų ir politikų baiminasi, kad aukštą konkurencingumą turinčios šalys, pramonės ir įmonės gali atitinkamai nurungti kitas. Čia mes galime paminėti, kad nors šalys ar pramonės gali būti pranašesnės visų tipų produktų gamyboje, tačiau dėl išteklių trūkumo jos negali gaminti visko vienu metu. Net patys konkurencingiausi pasaulio rinkų dalyviai turi pasirinkti. Kadangi ekonomistai mato teigiamus ryšius tarp produktyvumo, pajamų, gyvenimo lygio ir gyvenimo kokybės, jie tikisi, kad ryšiai tarp globalizacijos ir šių reiškinių yra teigiami. Daugelis žurnalistų ir politikų yra susirūpinę dėl senojo žemyno tarptautinio konkurencingumo. Jie tikisi, kad šalys kovoja dėl konkurencinių pozicijų. Ekonomistai laikosi nuomonės, kad pramonės ir įmonės konkuruoja. Šalies tarptautinio konkurencingumo koncepcija atrodo labai svarbi plačiajai visuomenei, taip kad ekonomistai negali jos nepaisyti. Pasaulio Ekonomikos Forumas pristato savo kasmetinėse pasaulio konkurencingumo ataskaitose konkrečias idėjas, kaip išreikšti nacionalinį konkurencingumą ir Lisabonos apžvalgose svarsto apie galimą konkurencingumo efektą šalies gerovei. Šiame straipsnyje mes pateikiame bendrą nuomonę apie minimą reiškinį ir detaliau apžvelgiame Baltijos šalis. Mus labiausiai domina rangavimas ir Baltijos šalių palyginimas su Pasaulio Ekonomikos Forumo Pasaulio konkurencingumo ataskaitoje paminėtomis šalimis. Be to, kai kurios statistinės koreliacijos tarp

16 80 globalizacijos, gyvenimo lygio, gyvenimo kokybės ir tarptautinio konkurencingumo yra aptartos Europos kontekste. Nors ekonomika ir m. finansinė krizė smogė Baltijos šalims nepaprastai stipriai, atrodo, kad jų ekonomikos vystymasis atsigauna. Todėl straipsnio pabaigoje aptariama, ar gali egzistuoti kliūtys Baltijos šalims sugrįžti prie aukštų augimo tempų ir vystymosi trajektorijos, kuri buvo m. ir ar yra galimybės šioms šalims pasiekti bendrą Europos Sąjungos ekonomikos lygį.