Services, Vertical Linkages, and Development: The Case of the Baltic Countries

Abstract

This article investigates structural changes and the role of services in final production in the economies of Baltic countries, following the vertically integrated sector approach to the input–output model. The analysis of the period 2000–2014 was conducted using the World Input–Output database. The results show significant differences in the technological intensity of manufacturing, in intersectoral links, and in the functional role of services in the economy. Although the Baltic countries have small economies, affected by common shocks, this area is far from homogeneous structurally. The results offer a case study of great interest for small emerging countries.

Keywords:

• baltic countries
• input-output
• KIBS
• structural change
• vertically integrated sector

JEL Classification:

• L60
• O14
• P20
• P51

ACKNOWLEDGMENT

We are grateful to the Editor and three anonymous referees for excellent comments and discussions.

Notes

1. The countries considered are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain.

2. In particular, Estonia is competitive with countries such as Ireland and Denmark (Camacho Ballesta, Melikhova, and Peinado 2012).

3. The severe financial crisis, the backwardness of the structure of production, and the low quality of institutions are among the main factors contributing to the slowdown in convergence and the stagnation in GDP. Some authors advance a hypothesis on a “middle-income trap” (Foxley and Sossdord 2011).

4. The definition of KIBS using the ISIC Rev. 4 includes: computer programming, consultancy, and related activities; information service activities (J62-J63); computer programming, consultancy, and related activities; information service activities (M69-M70); architectural and engineering activities; technical testing and analysis (M71); scientific research and development (M72); and advertising and market research (M73).

5. The relevant criterion for this classification is the average R&D intensity, defined as the ratio of total R&D expenditures to total turnover.