FACTORS AND IMPACTS IN THE INFORMATION SOCIETY
A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES
REPORT ON LATVIA
Authors:
Dr. Raita Karnite
Maris Klava
Kriss Karnitis
The authors of this report are solely responsible for the content, style, language and
editorial control. The views expressed do not necessarily reflect those
of the European Commission.
MARCH 2004
Technical Report EUR 21283 EN
2 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY
A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES
European Commission
Joint Research Centre (DG JRC)
Institute for Prospective Technological
Studies
http://www.jrc.es
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Technical Report EUR 21283 EN
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Preface
REPORT ON LATVIA 3
Preface
The Institute for Prospective Technological Studies (IPTS) of the Directorate General Joint
Research Centre of the European Commission contracted the International Centre for
Economic Growth, European Centre (ICEG EC) to act as the coordinator of a consortium of
11 research institutes to carry out this project.
The main objective of the project was to provide a series of national monographs studying the
development of the Information Society (IS), including both the positive and negative
impacts, in each of the candidate countries. These monographs offer an assessment of the
strengths and weaknesses of each country regarding the development of IS, and a view on
their possible outcomes; both strongly rooted in factual quantitative data. They provide a
clear, contextualised, multi-factoral and multi-causal picture of the input factors that
contribute to the success or failure of IS developments, and the relevant output parameters
that support mid- and long-term impacts on economic growth, employment and other relevant
aspects of the future of each country. Each monograph concludes with a set of alternative
scenarios for the development of IS in that country.
This report was carried out by the Institute of Economics at the Latvian Academy of Sciences,
and aims to study the factors and impacts of the Information Society in Latvia. The report
reflects the research results, comments and opinions of the team of authors. It does not
necessarily reflect the opinion of the European Commission. It is organised around 9 themes
– economy, demography, government policies, industrial development and competitiveness,
relevant economic activity, IST penetration rates, institutional capacity and regulatory
background, education, and culture. The section on each of these themes concludes with a
specific SWOT analysis. Finally, a general diagnosis is made of Latvia’s potential for IS
developments, followed by a brief section on possible scenarios for the future and policy
recommendations.
A Synthesis Report was also prepared by the Project Coordinator, the International Centre for
Economic Growth, European Centre (ICEG EC), on the basis of all the country studies. This
offers an integrated and prospective view on the future outlook for the Information Society in
the Candidate Countries and can be found on the FISTE (Foresight in Information Society
Technologies in Europe) website: http://fiste.jrc.es/
The contract was awarded by: Institute for Prospective Technological Studies (IPTS) of the Directorate General
Joint Research Centre, European Commission
Contractor: International Centre for Economic Growth, European Centre (ICEG EC) – Coordinator of
Consortium of 11 research institutes
Latvian member of the consortium: INSTITUTE OF ECONOMICS, LATVIAN ACADEMY OF SCIENCES,
Akademijas laukums 1, LV-1050, Riga, Latvija; Tel: 7222830, fax 7820608, email: raimara@lza.lv
Contract name: Factors and Impacts in the Information Society: a Prospective Analysis in the Candidate
Countries
Contract number: N 20089-2002-11 F1ED SEV HU
Table of Contents
REPORT ON LATVIA 5
TABLE OF CONTENTS
COUNTRY PROFILE………………………………………………………………………..9
A. NATIONAL AND REGIONAL ECONOMY…………………………………………..13
A.1. Introduction.................................................................................................... 13
A.2. Economic Growth .......................................................................................... 13
A.2.1. Macroeconomic stability.......................................................................... 16
A.2.2. Supply side of growth.............................................................................. 18
A.2.3. Demand side of growth ........................................................................... 22
A.3. Labour market, labour productivity................................................................. 24
A.3.1. Changes in employment ......................................................................... 24
A.3.2. Changes in labour supply........................................................................ 28
A.3.3. Changes in labour productivity................................................................ 30
A.4. FDI inflows..................................................................................................... 32
A.5. Trade flows .................................................................................................... 35
A.6. Regional developments ................................................................................. 38
A.7. SWOT analysis .............................................................................................. 40
B. NATIONAL AND REGIONAL INFORMATION SOCIETY POLICIES……….……41
B.1. Institutional settings ....................................................................................... 41
B.2. Chronological description of national and regional IS policies ....................... 42
B.3. Implementation and assessment of IS policies.............................................. 46
B.4. Driving motivation of IS policies ..................................................................... 50
B.5. The institutional setting behind the IS policies ............................................... 50
B.6. The commitment of private and public actors, main actors and their tasks.... 52
B.7. SWOT analysis .............................................................................................. 54
C. INDUSTRIAL DEVELOPMENT AND COMPETITIVENESS………………………55
C.1. Structural changes......................................................................................... 55
C.1.1. General situation..................................................................................... 55
C.1.2. Main regions of industrial production ...................................................... 57
C.1.3. Declining and rising sectors of industry and services.............................. 58
C.1.4. Changes in the structure of services....................................................... 59
C.1.5. Changes in investment ........................................................................... 60
C.2. The role of ICT industry ................................................................................. 62
C.2.1. Specific sectors’ market size and value .................................................. 62
C.2.2. International co-operation and competition ............................................. 63
C.2.3. Major sectors of innovation activity ......................................................... 66
C.2.4. Trade balance of ICT industry................................................................. 68
C.3. SWOT analysis.............................................................................................. 69
D. PRESENCE OF MOST RELEVANT ECONOMIC ACTIVITIES FOR IST
APPLICATIONS……………………………………………………………………………71
D.1. The most relevant potential spill-over effects of IST ...................................... 71
D.2. Level of IT investment ................................................................................... 72
D.3. Trends in innovation and R&D....................................................................... 73
D.4 R&D investment levels ................................................................................... 76
D.4.1. Expenditure on R&D ............................................................................... 76
D.4.2. Investment levels in the ICT sector ......................................................... 77
D.4.3. Technological innovations in different sectors ........................................ 78
D.4.4. Effect of massive investment in IST ........................................................ 79
6 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY
A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES
D.5. Major players of the ICT sector ..................................................................... 80
D.5.1. Present and future development of ICT sector ....................................... 80
D.5.2. Role and presence of multinationals and/or foreign companies.............. 80
D.5.3. Contribution of multinationals and/or foreign companies to IST related
developments .................................................................................................... 82
D.6. SWOT Analysis ............................................................................................. 83
E. INFORMATION SOCIETY TECHNOLOGIES (IST) PENETRATION RATES...…85
E.1. General trends............................................................................................... 85
E.2. Penetration and diffusion of information society technologies ....................... 85
E.2.1. IST in enterprises.................................................................................... 85
E.2.2. IST in financial services .......................................................................... 88
E.2.3. IST in major services sector.................................................................... 89
E.2.3.1. Telecommunication.............................................................................. 89
E.2.3.2. Other service sectors ........................................................................... 92
E.2.4. IST in public services .............................................................................. 93
E.2.4.1. IST in health services........................................................................... 93
E.2.4.2. IST in educational services .................................................................. 94
E.2.5. IST in public administration ..................................................................... 96
E.2.6. IST in households ................................................................................... 97
E.3. SWOT analysis .............................................................................................. 99
F. INSTITUTIONAL CAPACITIES AND REGULATORY BACKGROUND………..101
F.1. Regulation of the major markets affecting IST industries............................. 102
F.2. Regulation in the main services and infrastructure sectors.......................... 103
F.3. Regulation of the IST based public information and services sector............ 104
F.4. SWOT analysis ............................................................................................ 105
G. EDUCATIONAL SECTOR……………………………………………………………107
G.1. Main characteristics of educational system ................................................. 107
G.1.1. Achievements in secondary and tertiary education............................... 107
G.1.2. Reforms in secondary and tertiary education ....................................... 112
G.2. Key educational trends................................................................................ 113
G.3. Domestic and international mobility of scientific personnel ......................... 115
G.4. Tertiary sector and research performance in IST related subjects .............. 116
G.5. ICT-related education.................................................................................. 119
G.6. SWOT analysis............................................................................................ 121
H. NATIONAL AND REGIONAL DEMOGRAPHY AND PROSPECTIVE………….123
H.1. General characteristics and trends .............................................................. 123
H.1.1. Age distribution ..................................................................................... 123
H.1.2. Population dynamics............................................................................. 123
H.1.3. Main economic and social effects of population dynamics.................... 125
H.1.4. Ethnic composition and minorities......................................................... 125
H.1.5. Migration ............................................................................................... 127
H.2. SWOT analysis............................................................................................ 129
I. CULTURAL AND SOCIOLOGICAL ASPECTS…………………………………131
I.1. Income distribution ........................................................................................ 131
I.2. Consumption patterns ................................................................................... 133
I.3. SWOT analysis ............................................................................................. 134
Table of Contents
REPORT ON LATVIA 7
DIAGNOSIS OF FACTORS AND IMPACTS IN THE INFORMATION SOCIETY
IN LATVIA……...………………………………………………………………………….135
I.Demand side..................................................................................................... 136
I.1 Economic development and structure ........................................................ 136
I.1.1. Macroeconomic framework .................................................................... 136
I.1.2. Economic structure................................................................................. 137
I.1.3. Impact of emerging economic structure.................................................. 138
I.2. Conditions providing development of information-based and high-tech
industries ......................................................................................................... 139
I.2.1. Financing of the economy ...................................................................... 139
I.2.2. Labour supply......................................................................................... 139
I.2.3.Education ................................................................................................ 142
I.2.4. Innovation............................................................................................... 143
I.2.5. R&D........................................................................................................ 143
I.2.6. Population income.................................................................................. 143
I.3. Conclusion: demand side of IS.................................................................. 144
II. Supply side ..................................................................................................... 144
II.1. National and regional IS policies and legislation ...................................... 144
II.2. Institutional setting.................................................................................... 146
II.3. Regulatory framework .............................................................................. 146
II.4. Driving motivation and actors ................................................................... 147
II.5. Access to infrastructure ............................................................................ 148
II.6. Information systems and networks ........................................................... 148
II.7. Development of ICT industries ................................................................. 149
SCENARIOS FOR FUTURE DEVELOPMENT………………………………………..151
Scenario - business as usual .............................................................................. 151
I. Public policies .................................................................................................. 151
I.1. Political issues........................................................................................... 151
I.2. Economic development policy ................................................................... 151
I.3. Sector development policies...................................................................... 152
I.4. Investment................................................................................................. 152
I.5. Social development ................................................................................... 152
I.6. Labour supply............................................................................................ 152
I.7. IS development policies and legislation..................................................... 153
II. Consequences of applied policies................................................................... 153
II.1. Political situation....................................................................................... 153
II.2. Economic development policies ............................................................... 153
II.3. Sector development policies..................................................................... 154
II.4. Investment................................................................................................ 154
II.5. Social development .................................................................................. 154
II.6. Labour supply........................................................................................... 154
II.7. IS development ........................................................................................ 155
POLICY RECOMMENDATIONS………………………………………………………..157
I. Promotion of economic development............................................................... 157
I.1. Macroeconomic aspect.............................................................................. 157
I.2. Sector aspects........................................................................................... 158
I.2.1. Medium term intensive structural reforms............................................... 158
I.2.2.Investment............................................................................................... 158
I.2.3. Foreign trade .......................................................................................... 159
8 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY
A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES
I.2.4. Innovation............................................................................................... 159
I.2.5. Labour supply......................................................................................... 159
I.2.6. Education ............................................................................................... 160
I.2.7. Research and development.................................................................... 160
I.2.8. Social issues .......................................................................................... 161
II. Promotion of IS development.......................................................................... 161
II.1. General policy measures.......................................................................... 161
II.2. Sector level............................................................................................... 161
II.2.1. Development of infrastructure ............................................................... 161
II.2.2. Development of information content ...................................................... 162
II.2.3. Education and development of skills ..................................................... 162
II.2.4. Increasing effectiveness of ICT application ........................................... 163
II.2.5. Institutional basis ................................................................................... 163
REFERENCES……………………………………………………………………………165
ANNEX…………………………………………………………………………………….167
Country Profile
REPORT ON LATVIA 9
COUNTRY PROFILE
Latvia, one of the Baltic countries, is situated in North-East Europe, on the Eastern coast of
the Baltic Sea. It borders with Estonia to the North, Russia to the East, Belarus to the South-
East and Lithuania to the South.
Table 1: Main data about Latvia
Area, km2 64589
of which, land 62046
inland water 2543
Extension, km, from north to south 210
from west to east 450
Length of boundary, km 1862
of which, land boundary 1368
sea border 494
Resident population, thousand persons 2319,2
of which, urban, % 67.8
rural, % 32.2
Administrative territorial division:
cities and towns 77
counties 15
pagasts (civil parishes) 461
Population density (inhabitants per 1 km2 of
area)
35.9
National currency lats (LVL)
Source: Statistical Yearbook of Latvia 2003, Central Statistical Bureau of Latvia, Riga, 2003, pp.7, 36, 37,
Monthly Bulletin of Latvian Statistics, 2(117), 2004, Central Statistical Bureau of Latvia, Riga, March 2004,
p.46, population as of 1 January 2004
Latvia belongs to the small countries of Europe. The country on the whole is determined as
NUTS 2 region in the EU, and it is divided in five NUTS 3 regions (map 1).
In the past, the access to the Baltic Sea and its ice-free ports encouraged neighbours to invade
these territories. That is why Latvia was first proclaimed independent as late as 18 November
1918. The first independence period was not long – just 22 year later, on 17 June 1940, the
Soviet Army entered the territory of Latvia and the country lost its independence. It became a
formal member of the USSR on the 5 August 1940.
Latvia was one of the most developed republics in the Soviet Union. Within the so-called
production relocation schemes, Latvia and other Baltic countries were focused on knowledge
intensive industries. A number of large machine building, electronic, radio engineering,
pharmaceutics and chemical enterprises were located there, many of them producing for space
development and military industry. Almost all of them collapsed after break of the Soviet
Union that led to the total loss of former markets. Nevertheless focus on such kind of
industries continues in Latvia.
10 FACTORS AND IMPACTS IN THE INFORMATION SOCIETY
A PROSPECTIVE ANALYSIS IN THE CANDIDATE COUNTRIES
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