International Business & Awareness 3

Lithuania

Macro-Economics Trade-Off

Political freedom and rule of law

The trade-off political freedom and rule of law basically describes the gap in practices in relation to government policies. It therefore concerns the question what is the rule of law degree, how democratic is it and how is it practiced?

To answer the last question, it is advisable to take the rule of law index into consideration (The Global Economy). It becomes clear that the rule of law is growing over time, having one of its peak years 2016 and 2019. This assures that the government institutions are trustable and reliable. Now it is important though to understand to which degree these practiced criteria are supporting political freedom and democracy.

A great way to understand the perceived value of democracy is to understand Lithuania’s society and their opinions. The European commission has executed an interview with Lithuanian people regarding the degree of rule of law, which values they appreciate and how they are practiced in Lithuania (European Commision, 2019). The results are overall very much in line with the European values. The things Lithuania’s rule of law needs to strongly improve are equality of law, corruption or abuse of power and freedom of independent activistic groups.

To conclude Lithuania’s political freedom and rule of law are not very diverse, they are much in line with European standards and only require a couple of improvements mostly in the field of political opposition and corruption.

Inflation and unemployment

This year and the following years will strongly be influenced by Covid 19 and its developments. Inflation and unemployment are strongly related, as unemployment increases if inflation does. As you can see in the EU comparison Lithuania has a relatively high inflation (Lithuania’s Government, 2020), but an extremely low unemployment rate (Eurostat, 2018). This is uncommon, because usually inflation and unemployment increase at the same time.

Income equality vs. economic growth

Lithuania has one of the fastest growing economies, but at the same time also the most inequality between gender. Women are more exposed to poverty, have smaller retirement rates and are the one’s taking care of the children. This arises from past traditions, as the women always took care of children and it is still noticeable today that only about 29% of men spend time on housework, while women spend 79%. Further there is a massive income gap not only between gender but also within regions, as the rural areas receive about 65% less than people from urban areas (Make Europe Sustainable for All, 2019). Still all of this inequality causes a massive economic growth because high-earners earn more and more, resulting in an increase in wage gap.

Risk Profile

The Republic of Lithuania is part of the Baltic countries and belongs to the European Union since 1 of May 2004 and is therefore a relatively young member. They have a parliamentary republic with a head of government. Regarding Lithuania’s economy one can say that wholesale and retail, transport and travel industry are the most profitable one’s. Almost 60% of Lithuania’s trade is within Europe while their most important international partners are Russia and the US (European Union, 2020). Lithuania has a gross domestic product growth rate of 3,9%, which is for example in comparison to Germany (0,6%) relatively high (Destatis Statistisches Bundesamt, 2020). The GDP in urban areas like Vilniaus is much higher than in rural areas like Telsiu. As it became clear Lithuania is the fastest growing economy of the European Union, and therefore seems like an interesting market.

From a geographical point of view Lithuania carries some risks, as it is an earthquake and flood region. The damage of the earthquakes is very minimal and the latest one occurred in 2020 with a strength of 1.8, so relatively low. A much bigger problem are the floods, as they partly have an influence on the economic performance, visible in the GDP. Between 1 to 5 % of the GDP are affected by the floods, depending on the region. The worst affected region is Alytaus, while Telsiu and others are not affected in terms of influence on GDP.

In conclusion Lithuania seems like a low-risk country, with some smaller risks in terms of geographical location and political and social stability. While the economy is growing massively in urban areas, wages are unfairly divided which causes tension between gender and locations. Corruptions seems like something that needs to be worked on, as well as a solid preparation for earthquakes and floods. When considering the factors above Lithuania seems like an interesting country to do business with, with a normal risk factor.

Bibliography

The Global Economy. (n.d.). Lithuania: Rule of law. Retrieved 11 2020, from https://www.theglobaleconomy.com/Lithuania/wb_ruleoflaw/

European Commision. (2019). Rule of Law Lithuania. EU.

Lithuania’s Government. (2020). Lithuania’s Economic Development Scenario 2020–2023. Government.

Eurostat. (2018, 10 9). Unemployment rates in EU . Retrieved from https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20181009-1

Make Europe Sustainable for All. (2019). INEQUALITIES IN LITHUANIA HIGH LEVELS OF INEQUALITY IN A CONTEXT OF RAPID ECONOMIC GROWTH. Retrieved from https://gcap.global/wp-content/uploads/2019/06/9.3.a-report-LT.pdf

European Union. (2020). Lithuania. Retrieved from https://europa.eu/european-union/about-eu/countries/member-countries/lithuania_en

Destatis Statistisches Bundesamt. (2020, 03 08). Lithuania. Retrieved from https://www.destatis.de/Europa/EN/Country/EU-Member-States/Lithuania.html

WORLD BANK GROUP. (2015). Lithuania. Retrieved from http://documents1.worldbank.org/curated/en/170221493703979807/pdf/114695-WP-PUBLIC-drp-lithuania.pdf

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