A causative matrix approach for measuring temporal structural changes caused by globalization in Latvian economy

Institute of Agroresources and Economics (AREI), Department of Economics, Riga, Latvia

^* Corresponding author: juris.hazners@arei.lv

Abstract

Research background: globalization processes affect the economies mainly with intensified foreign trade flows which have an impact of all industries including also sectors that operate mainly in domestic markets. Identifying the structural changes in economy sectors is crucial for the selection of the future policy options.

Purpose of the article: the objective of the research is the estimation of the structural changes in Latvian economy by analyzing the structural changes in sector output over the period from 2006 to 2014.

Methods: the left causative matrix method allows for the evaluation of the contributions of economy sectors to other sectors and supply within the sector. By adding the changes in sector output multipliers which capture the changes in final demand, overall changes in the structure of sector output can be estimated. After the obtaining these indicators, sectors can be clustered based upon the change ratios.

Findings & Value added: research results show that none of the sectors has performed positively in every aspect in terms of output externalization, importance for other sectors or contributions to final demand. Manufacture of textiles, wearing apparel and leather products is a single sector with increased externalization and importance for other sectors, while it’s contribution to final demand has slightly declined. Agriculture and fishing along with number of manufacturing sectors has shown increased ratios with respect to other sectors and final demand. For sectors with increased internalization, the importance of other sectors and final demand has declined. In general, increased internalization should be considered alarming as it points to lower competitiveness of products forming sector output.