Latvian foreign trade and investment with Germany and Russia: past and present

This paper examines Latvia's foreign trade and investment relations with Germany and Russia during the interwar period and the period after the restoration of independence up to now. During the period between the two world wars Latvia's foreign trade was completely integrated into the European trade systems at that time. One of Latvia's main trading partners was Germany, whilst trade with Russia (USSR) was minimal. The reorientation of Latvian trade to the West after regaining independence in 1991 meant the reestablishment of links with Germany, as well as the maintenance of links to Russia. In comparison to the pre-war period, Latvia's foreign trade is no longer dominated by Germany, whilst trade with Russia is at a much higher level than in the interwar period. Trade with Germany in 2008 made up 11.1% of Latvia's total trade while trade with Russia accounted for 10.5%.The structure of trade has also changed particularly in relation to Germany and to a lesser degree with Russia. Pre-war Latvia's exports to Germany were mainly agricultural and forestry products; today they consist of manufactured goods and forestry products. Exports to Russia in the interwar period were mainly manufactured goods, but today exports consist of manufactured goods as well as food processing products. In terms of investments, pre-war investment from Russia (USSR) in Latvia was negligible, whilst the largest investor in Latvia was Germany. In 2008 Germany was the 10th largest investor in Latvia (3.6%), whilst Russia was on the 7th position (5.6%). Thus, whilst the role of Germany in terms of trade had decreased substantially since the interwar period Russia's role has increased both in terms of trade and investment.