Challenges for Economic Growth of Regions in the Baltic Sea Region Case Study of Latvia

The Baltic Sea region is one of the most socially, economically and technologically developed regions in the world. The region has a high GDP level, limited social inequality in a global context, leading positions in Doing Business and Global Competitiveness indeces. Meanwhile, the region is experiencing rapid aging of society and depopulation of the territories, the region internally has large differences in the development of human capital and productivity rates. The eastern part of the region is expressively dependent on one supplier's power resources; it is experiencing the largest fall as a result of the global economic crisis; and has high unemployment and poverty rates. One of the most prosperous and sustainable macro-regions in the world is facing high challenges in development of balanced and sustainable socio-economic structure inside it. The report analyzes which factors have promoted or hampered the growth of the regions (at NUTS3 level) of Baltic countries; and what areas of development play a crucial role for further growth. Therefore perspective policy intervention areas for promotion of the region's sustainable economic growth are analysed, - implementation of integrated development planning practice; exploration of advantages of modern regional governance practice; strengthening of business and innovation capacity at the regional level. By using the approach and methodology developed by OECD in the analysis of regional growth factors, calculations have been made about the comparative rates of the 3 Baltic countries - Estonia, Latvia and Lithuania. For the basis of the analysis, 6 indicators were used describing GDP growth, productivity, employment and population. The comparative growth speeds of the regions were analyzed over a period of several years. Results of the analysis clearly demonstrate the impact left by the global economic crisis on the economy of the regions. It also demonstrates failures of the selected and enforced government's regional policy based on subsidies to support development of infrastructure in the lagging regions of Latvia. The tendencies indicate specific policy implications. The best results may be achieved by combining different possibilities existing in the regions and by using modern and innovative management tools. Keywords: regions, economic development, integrated development planning, regional governance