Manufacturing Industry Trends in Lithuania

Abstract

The article is aimed at highlighting development trends of the manufacturing industry in Lithuania and assessing its prospects. In recent years, this industry has been the driving force of the Lithuanian economic development. Not only does it generate the highest GDP share but has a significant direct impact on agriculture, transport and construction industries and dominates Lithuanian exports. Manufacturing industry plays a key role in Lithuania’s efforts to cover the economic gap between the country and the developed states as soon as possible. Experience of a number of other countries has shown that fast economic growth in the long term usually relies on the development of manufacturing industry, especially when a country lacks abundant natural resources. However, Lithuania is strengthening its formal and actual integration into a rather uniform EU economic space where an opposite trend of the reduction in manufacturing weigh is gaining momentum. The paper will try to answer the question why Lithuania is probably the only EU member state where the manufacturing industry's share in the GDP has not declined and even went up significantly in recent years. Experts believe that the industrial development in Lithuania has reached its breaking point. The period when low production costs gave companies a competitive advantage and contacts with foreign partners were key success factors is drawing to a close. Further industrial growth will rely on improved labour productivity, i.e. production modernization, generation of higher value added and use of innovations. However, the main obstacles are shortage of highly skilled labour force, low foreign direct investment flows, lack of close ties between business and research communities and a rather poor situation of R&D in the country. The paper analyses whether the expectations that the industrial structure will shift towards the development of high and medium-high technologies branches have a strong basis. Experts believe that the strengthening competitive pressure from Asian companies will force Lithuanian exporters to focus on penetrating the CIS region. The possibility to bridge the EU and CIS countries is a strong, albeit highly overlooked, trump card of the Lithuanian economy in the competitive battle. The article concludes with the overview of the existing situation in and outlook for major sectors of the manufacturing industry.