Effect of the tradable sector on average nominal income: the case of Latvia
2017
Ancans, S., Latvia Univ. of Agriculture, Jelgava (Latvia)
In a small open economy, the income level and, as a result, the standard of living are determined by the development level of the tradable sector – labour productivity in this sector –, which, in its turn, determines the wage and salary level both in the tradable and in the non-tradable sector. Economic growth and income increase in a small economy are mainly a result of export growth. The research aim is to examine the relationship between the tradable sector’s performance and the average nominal wage and salary in Latvia. The research performed an analysis of correlation between the average wage and salary and the amount of exports; the correlation coefficient reached almost 1.0. Labour productivity in the tradable sector in Latvia was, on average, four times lower than in developed countries, regardless of the technological level. In order for Latvia to theoretically reach the current nominal income level of developed countries, the country’s exports have to rise approximately fourfold to about EUR 57 billion.
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