The Importance and Perspectives for Development of Manufacturing in Latvia

Manufacturing is a sector of the real economy, which plays a crucial role for the development of a country. Over the recent 15 years Latvia has changed the structure of the added value to the gross domestic product (GDP), putting the main stake on the services sector and pushing the manufacturing industry into the background. Today the ratio/share? of the manufacturing industry in the economy of Latvia is considerably lower than the average level of EU member states. As the services sector is a very vulnerable to external shocks, the recovery of manufacturing could be the ring-buoy for Latvia to overcome the global economic slowdown. The aim of the article is to define the main preconditions for successful functioning of the manufacturing industry, as well as to analyse the current situation in the key sectors of Latvian manufacturing, finding the main favourable and obstructive factors for its development. In order to scrutinise and process the data on the Latvian industry the author has used analytical and graphical methods, such as benchmarking, factor determination, specification, meta-analysis, ethnographic/qualitative analysis and others, as well as applied economic mathematical and statistical methods (modulation of optimization, macroeconomics methods), quantitative and qualitative methods to analyse the main factors which determine effective performance of a sector. By means of the quantitative micro software “E-views” the author has generated an equation showing the correlation between the value added of the manufacturing industry to the total Latvian GDP and a range of independent (exogenous) factors. In the equation the exogenous factors are associated with numerically expressed coefficients, which show the importance of a certain factor for the economy of Latvia. Based on the results of the mathematical study the author has made a conclusion that the most relevant precondition for the long-term operation of a manufacturing sector is the number of people employed in the sector (the index reflecting the quality of professional skills), followed by the level of investments, the price index in the country, labour costs, and export volume of the production. The author has applied the algorithm expressed by the equation to 6 key sectors of manufacturing in Latvia, and made conclusions on the future perspectives and the existing hindrances of the particular sectors. According to the study, the chemical sector shows the biggest expectations, while wood processing and the sector of metal production cause the most significant worries, and there is a sharp necessity to take immediate actions to prevent sinking of these sectors. Based on the analysis of the statistical data, the author has also found confirmation of adequacy of the manufacturing equation in practice