Bank of Lithuania
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2021-02-10

A picture of investment in Lithuania

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This article analyses Lithuania’s investment environment by reviewing investment structure and its changes, assessing the impact of Lithuania’s economic structure on investment performance, revealing the main drivers behind Lithuania’s investment development, showing the interaction between government and business investment and assessing the impact of foreign capital on the country’s economic development. The article shows that the investment to value added ratio in Lithuania is lower than the EU average, which may be partially related to low investment intensity of the main economic activities. It has been identified that the main drivers of investment development in Lithuania are demand variables, such as foreign demand and private consumption. The analysis of government investment revealed that this investment seems to “crowd in” business investment rather than crowding it out. Lithuania’s public infrastructure level is close to the indicator of developed countries, therefore, new investment should be mainly focused on the maintenance of the current infrastructure. In terms of attracting foreign direct investment (FDI), Lithuania is lagging behind other Central and Eastern European countries. The reserves of qualified labour, which made the largest contribution to the attraction of FDI, may be depleted in the medium- or long-term period. The potential for foreign capital inflows could be boosted by the regionalisation processes and value chain shortening highlighted by the COVID-19 crisis as well as by larger-scale digitalisation and automation. The article analyses investment dynamics in Lithuania and reflects its current state, while its future will depend on individual actions of decision-makers and the allocation of limited public and private resources in the right direction.

The views expressed are those of the author(s) and do not necessarily represent those of the Bank of Lithuania.


Available only in Lithuanian

bayesian vector autoregression, foreign direct investment, government investment, business investment, private investment, public investment, investment intensity, economic structure, crowd-out and crowd-in channels, R&D, infrastructure, human capital, labour productivity, shift-share analysis, impulse response function