How Is the Crisis Affecting the Competitiveness of Countries?

The chapter focuses on the relation between the economic crisis and competitiveness on a national and regional dimension. The Baltic countries (Estonia, Latvia, and Lithuania) have experienced one of the biggest GDP contractions during the Global Crisis so far. Hence, identifying and assessing changes in the relative competitiveness as a consequence of the economic downturn has sparked many interests. The international competitiveness and economic crisis intermingle with one another. The international cases selected for the purpose of this research (Estonia, Latvia, and Lithuania) were to demonstrate clear and unquestionable evidence that crisis affects the international competitiveness of countries. One may believe that such a deep and painful financial and economic crisis as the current one—in the case of the Baltics—has to leave some permanent and explicit traces on a country's competitiveness. Thus, the results of this research may surprise a little. It may be generally concluded that a short-term crisis, even if severe, does not have a negative long-term influence on the international competitiveness as long as a proper anti-crisis policy is implemented. Sharing a number of structural, institutional, and performance features caused the crisis to undermine the competitiveness of the Baltic States in a similar manner (through macroeconomic stability channel). This in turn caused the applying of an analogue crisis management policy with the fundamental tool of fiscal policy tightening by an increased downward flexibility of wages and prices.