Latvia As A Baltic Country

1428 Words Mar 22nd, 2015 6 Pages
Introduction
Latvia as a Baltic country, has interesting economic story. It has moved from one union to another in just over 20 years. Surely, it assumes good level of economic decisions to be done. Previously, USSR member still had some consequences from command economy. Therefore, decided to join European Union (EU) in order to move to market economy and stop being dependent on Russia. EU helped Latvia to create more trade, raise domestic market and bring specialisation by comparative advantage, which led to rise in welfare and output. This year from January to June, Latvia is holding presidency of the council of the EU.
What happened?
Entry to EU happened on 1st of May, 2004. Prior to entry, Latvia had fairly low positive output gap in a range of 2%. Gross Domestic Product (GDP) growth rate was more or less the same, until 2008 when it started to decline and reached the trough at 12% negative output gap. Causes for such change were mainly due to consumption, investment and net imports. Once entered European Union, trade has increased as well as interest rates became lower, rising Consumption and Investment. That have caused Aggregate Demand(AD) boom leading to inflation due to increse in price level. «Latvia government was forced to increase wage rates in order to avoid emigration of work force» (Perviy Obozrevatel, 2010) to nearby countries like UK & Ireland where employee payment was much higher. Following rise in wage rates cost of firms has increased leading to…
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