# **List of Contents**

|**I.**<br>**Introduction............................................................................................................... 5**|
|---|
|**II.** **Latvia’s Industrial Structure................................................................................. 12**|
|A. Productivity........................................................................................................... 12|
|B.<br>Technology Vs. Labor Intensive Industries.......................................................... 14|
|C.<br>FDI Flows ............................................................................................................. 19|
|D. The Forestry Sector: Microcosm of Latvia’s Problems and Prospects................. 22|
|**III.** **Benchmarking Latvia............................................................................................. 26**|
|A. Global Competitiveness Report............................................................................ 26|
|B.<br>World Bank Knowledge Economy Index (KEI)................................................... 29|
|C.<br>Porter and Stern: National Innovation Capacity.................................................. 32|
|**IV.** **Reforming Latvia’s National Innovation System ................................................ 35**|
|A. Enterprise Sector – Little Innovation and Less R&D........................................... 35|
|**V.** **Latvia’s NIS – Change without Reform ............................................................... 40**|
|A. Production of Knowledge ..................................................................................... 40|
|B.<br>Technology Commercialization............................................................................ 55|
|C.<br>Absorption and Diffusion of Knowledge.............................................................. 64|
|**List of Figures**<br>|
|Figure 1 Labor productivity per employed person in 2002 .............................................. 12|
|Figure 2 Structure of Latvia’s Manufacturing Exports in 2001, as % of Total ................ 13|
|Figure 3 Productivity gains in selected manufacturing sectors compared to.................... 13|
|Figure 4 Technology Driven & Labor Intensive Industries' Share in Manufacturing<br>Production, 1999....................................................................................................... 14|
|Figure 5 Human Resources Utilization, 2000-2001 ......................................................... 15|
|Figure 6 Exports Produced in Technology-Driven Industries.......................................... 16|
|Figure 7 Exports Generated by Labor-Intensive Industries.............................................. 16|
|Figure 8 Indicators of intra-industry trade with the EU (15)............................................ 17|
|Figure 9 Exports to the EU by Labor Skill Requirements:............................................... 18|
|Figure 10 Relative market shares in the EU by industry clusters, 1999........................... 19|
|Figure 11 FDI stock in manufacturing industry................................................................ 22|
|Figure 12 Forest Sector Share of Total Latvian Exports .................................................. 22|
|Figure 13 Trade Balance of Latvia ................................................................................... 23|
|Figure 14 Export of Wood and Wood Products, 2001...................................................... 24|
|<br>Figure 15 Exports of Forest Cluster in Latvia and Finland .............................................. 24|
|Figure 16 Forest Cluster Structure in Finland................................................................... 25|
|Figure 17 KE Index in Latvia and Selected European Countries..................................... 29|
|Figure 18 Economic and Institutional Regime in Global Context.................................... 30|
|Figure 19 Latvia’s Education in Global Context.............................................................. 31|
|Figure 20 ICT in Global Context...................................................................................... 31|

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